ACCA - CAT | Paper T9 Preparing Taxation Computations Solved Past Papers

Certified ACCounting teChniCiAn exAminAtion

SAmple multiple ChoiCe queStionS – June 2009

Paper T9 Preparing Taxation Computations

Section A onlyAll questions are compulsory

Note: Section B of the actual exam paper will contain four written questions

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the following questions are typical of those that will appear in Section A of the examination paper from June 2009 onwards. there will be a total of ten questions in section A.

All questions in Section A will be worth two marks each.

1 John receives a salary of £40,000 a year and has the use of a company car for private journeys. The benefit value amounts to £4,100.

Which form does John’s employer use to report this benefit to hm Customs and excise (hmrC) and by when must this form reach John?

A Form P11D by 31 May

B Form P11D by 6 July

C Form P60 by 31 May

d Form P60 by 6 July (2 marks)

2 P Ltd lets out an unused building on 1 January 2009 for a period of 21 years and for a premium of £60,000.

how much of the premium is assessed as property income in p ltd’s profits chargeable to corporation tax (pCtCt) for the year ending 31 march 2009?

A £36,000

B £60,000

C £12,000

d £24,000 (2 marks)

3 John earns £35,000 a year and was provided with a computer for both private and business use on 1 November 2008. The market value of the computer when first provided was £3,600.

What is the value of the benefit that must be shown on the benefits form completed by his employer for 2008–09?

A £220

B £720 C £300

d £360 (2 marks)



3

4 Z Ltd buys a new factory for use in its trade for £850,000. The cost comprises of:

£ Land 180,000 Factory 400,000 Design office 100,000 Legal fees for factory 20,000 Admin office 200,000 900,000

on what amount is industrial buildings allowance (iBA) calculated?

A £650,000

B £520,000

C £500,000 d £720,000 (2 marks)

5 X Ltd has included a deduction in its accounting profit of £3,200 in respect of the annual leasing cost for a car, which has a recommended list price of £16,000. The car has been used for the whole of the 12-month period ended 31 March 2009.

When preparing the adjusted profit for tax purposes what adjustment must be made to the profit and loss account in respect of the leasing cost in the year ended 31 march 2009?

A £400

B £2,800

C £1,600

d £200 (2 marks)

6 Mr Smith is a sole trader. His tax for the tax year 2008–09 amounts to £18,000. He did not pay any tax under deduction at source.

on which dates were/are mr Smith’s payment on accounts due for this amount?

A 31 January 2009 and 31 July 2009

B 31 January 2010 and 31 July 2010

C 31 July 2009 and 31 January 2010

d 31 October 2009 and 31 January 2010 (2 marks)

7 Y Ltd is registered for value added tax (VAT) and uses the flat rate scheme. In his VAT quarter ended 31 March 2009 he had a tax inclusive turnover of £110,000. This comprises of standard rated sales of £80,000, zero-rated sales of £20,000 and exempt sales of £10,000. The flat rate scheme percentage for the company’s trading sector is 9%.

the VAt payable by Y ltd for the quarter ended 31 march 2009 is:

A £9,900

B £7,200

C £9,000

d £8,100 (2 marks)



4

8 Jim is an employee of J Ltd. Jim receives cash earnings of £27,000 and a car benefit amounting to £4,000 in the tax year 2008–09. Jim is not contracted out of the state pension scheme.

how much class 1 (primary) national insurance contributions (niC) does Jim suffer in respect of the tax year 2008–09?

A £2,372

B £2,812

C £2,970

d £3,410 (2 marks)

9 Richard has been a sole trader for many years making up his accounts to 31 July each year. He ceased to trade on 31 December 2008. Richard’s most recent adjusted profits for tax purposes have been:

Year to 31 July 2007 £16,000 Year to 31 July 2008 £14,000 Five months to 31 December 2008 £7,000

He has unused overlap profits for earlier years amounting to £4,000.

What is richard’s taxable trading profit figure for the tax year 2008–09?

A £17,000

B £14,000

C £21,000

d £3,000 (2 marks)

10 Peter rents out a home fully furnished. The house does not qualify as a furnished holiday letting. For the tax year 2008–09 his rental income and expenses are:

Rent £12,000

Expenses: Water rates £200 Agents fee £1,200 Insurance £400

how much can peter claim for wear and tear allowance in 2008–09?

A £1,200

B £1,180

C £2,400

d £2,360 (2 marks)

end of Sample questions



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Answers



6

Sample multiple Choice question paper t9(uK) Answerspreparing taxation Computations

1 B

2 A £ Premium 60,000 2% (21–1) x £60,000 (24,000) 36,000

3 C

MV x 20% x 5/12 £3,600 x 20% x 5/12 = £300

4 B

Land is never an allowable cost. The admin office is only allowed if it is less than 25% of the overall cost less the land. Here it is more than 25% and therefore does not qualify for IBA.

5 A £ 3,200 £3,200 x 16,000 + 12,000 (2,800) 16,000 x 2 400

6 A

7 A

The flat rate perentage is applied to the full tax inclusive turnover including all standard, zero and exempt supplies.

8 A

(£27,000 – £5,435) x 11% = £2,372

9 A

The business ceases in 2008–09 and therefore the basis period is the entire period covered by everything earned since the 2007–08 assessment of £16,000. This amount can then be reduced by the unused overlap profit.

(£14,000 + £7,000) – £4,000 = £17,000

10 B

Rent – rates x 10% (£12,000 – £200) x 10% = £1,180



Preparing TaxationComputations(UK Stream)

ACCA CERTIFIED ACCOUNTING TECHNICIAN EXAMINATION

ADVANCED LEVEL

TUESDAY 15 JUNE 2004

QUESTION PAPER

Time allowed 3 hours

ALL FOUR questions are compulsory and MUST be answered

Tax rates and allowances are on pages 3–5 Pape

r T9

(GB

R)

The Association of Chartered Certified Accountants



This page is blank.The question paper begins on Page 3.

2



The following tax rates and allowances are to be used in answering the questions

Income Tax

Lower rate £1–£1,960 10%Basic rate £1,961–£30,500 22%Higher rate £30,501 and above 40%

Note:UK dividends will be taxed at 10% when they fall within the basic rate band and 32·5%thereafter.

Personal allowances

£Personal allowance under 65 4,615

Company car benefit

Base level for CO2 emissions: 155 grams per kilometre

Car fuel benefit

The base figure for calculating the car fuel benefit is £14,400

Approved mileage allowances

All cars:Up to 10,000 miles 40pOver 10,000 miles 25p

Personal pension contribution limits

The maximum contribution that can be made without evidence of earnings is £3,600.

Age at start Maximumof tax year percentageUp to 35 17·536–45 2046–50 2551–55 3056–60 3561 or more 40

Subject to earnings cap of £99,000

Official Rate of Interest

5%

3 [P.T.O.



Capital allowances

%Plant and machinery

Writing down allowance 25First year allowance – plant and machinery 40

– information and communicationtechnology equipment 100

– low emission motor cars 100

Industrial buildings Writing down allowance 4

Corporation tax

Financial year 2003 2002Starting rate 0% 0%Small companies rate 19% 19%Full rate 30% 30%Starting rate lower limit £10,000 £10,000Starting rate upper limit £50,000 £50,000Small companies – lower limit £300,000 £300,000Small companies – upper limit £1,500,000 £1,500,000Marginal relief fraction:

Starting rate 19/400 19/400Small companies rate 11/400 11/400

Marginal relief

(M – P) x I/P x Marginal relief fraction

Value added tax

£Registration limit 56,000Deregistration limit 54,000

Capital gains tax: annual exemption

Individuals £7,900

4



Capital gains tax: taper relief

The percentage of the gain chargeable is as follows:Complete years after 5 April Gains on Gains on1998 for which asset held business assets non-business assets

% %1 50 1002 25 1003 25 954 25 905 25 856 25 807 25 758 25 709 25 6510 25 60

Capital gains tax: indexation factors (question 2)

August 1985–December 2003: 0·866May 1993–December 2003: 0·263

National insurance contributions(not contracted-out rates)

%Class 1 employee £1–£4,615 per year Nil

£4,616–£30,940 per year 11·0£30,941 and above per year 1·0

Class 1 employer £1–£4,615 per year Nil£4,616 and above per year 12·8

Class 2 £2·00 p.w.

Class 4 £1–£4,615 per year Nil£4,616–£30,940 per year 8·0£30,941 and above per year 1·0

All apportionments should be made to the nearest month.

Calculations and workings need only be made to the nearest £.

All workings should be shown.

5 [P.T.O.



ALL FOUR questions are compulsory and MUST be attempted

1 (a) Penny Donald is 46 and works as a sales manager for Modern Fashions plc, a large UK resident company.Penny’s salary is £46,000 per annum.

During the tax year 2003/04 Modern Fashions plc provided Penny with the following benefits:

– The use of a company car. This was a petrol driven 2000 cc BMW with a CO2 emission level of 242 gm/kmand a recommended list price of £21,000. The car was for Penny’s sole use and she drove a total of 12,000miles during 2003/04 of which 60% were on business related journeys. The company paid for all the petrolused by Penny, however Penny contributed £40 per month towards the overall cost of this.

– Workplace parking which cost the company £1,200 per year.

– Private medical insurance. This cost the company £800, but would have cost Penny £960 if she hadarranged this herself.

– Nursery provision for Penny’s two children. This cost the company £2,500 and was used by Penny to helppay for the fees at Penny’s local nursery school.

– A computer system with a recommended selling price of £4,800. This Penny used at home for bothbusiness and private purposes. She estimates that 40% of the use was for business and 60% for personaluse. The computer was first provided in February 2003.

Penny paid £350 per month to the company’s occupational pension scheme.

Penny paid tax of £9,165 under the PAYE system for the year 2003/04.

In addition to the above Penny received the following investment income for 2003/04:

– Building society interest of £2,400

– UK dividend income of £900

– Interest of £350 from an Individual Savings Account (ISA).

The above amounts are stated as the cash amounts received.

Penny also paid a cash amount of £390 in December 2003 to the charity, Oxfam, under the gift aid scheme.

Required:

Calculate the income tax payable by Penny for the tax year 2003/04. (18 marks)

(b) Penny wishes to complete her 2003/04 tax return as soon as possible and is waiting for PAYE forms to beprovided by Modern Fashions plc.

Required:

(i) State which form gives details of Penny’s pay, tax and national insurance contributions for the year andby which date she should receive this.

(ii) State which form gives details of Penny’s benefits for the year and by which date she should receivethis.

(iii) State by which date Penny should return her tax return for the year ended 5 April 2004 to the InlandRevenue if she wishes them to calculate the income tax due. (5 marks)

(c) Penny’s husband, Adrian, also works for Modern Fashions plc and received a salary of £38,000 for 2003/04.In addition he received a car benefit calculated as £2,400 for that year. He is not a director and did not receiveany bonuses.

Required:

Calculate for both Adrian and Modern Fashions plc, the total national insurance contributions due for the taxyear 2003/04. (5 marks)

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(d) Adrian owns a house, which is not his main residence and which has been let furnished to tenants for the lastfour years.

The annual rent payable in advance by equal monthly instalments on the 6th of each month was £7,200 untilDecember 2003 but was increased to £7,800 per year with effect from 6 January 2004. All amounts werereceived on time with the exception of that due for 6 March 2004, which was not received until 2 May 2004.

Expenditure relating to the property was as follows:

Council tax £960Water rates £380Agent’s fees £780Re-decoration costs £1,250New kitchen units £2,400Mortgage interest £2,500

All these amounts were paid in 2003/04 by Adrian with the exception of the council tax which was theresponsibility of the tenants.

The kitchen units were purchased to replace the existing out-dated units in an attempt to modernise the property.

The mortgage interest was paid in respect of a £50,000 interest only loan at 5% per annum

Required:

Calculate the amount assessable under Schedule A for the tax year 2003/04. Assume Adrian will claim wearand tear allowance. (You are not required to calculate the amount of tax payable). (5 marks)

(33 marks)

7 [P.T.O.



2 (a) Baker Productions plc owns 60% of Street Industries Ltd and 40% of Holmes Ltd. All three companies are UKresident and make up their accounts to 31 March annually.

During its accounting year ended 31 March 2004 Baker Productions plc had the following items of income andexpenditure:

Income:£

Adjusted trading profit (before capital allowances) 262,400Rent 24,000Bank interest 8,000Debenture interest 14,000Dividend from Street Industries Ltd 9,000Dividend from Holmes Ltd 5,400

Expenditure:Gift aid donation to the charity, Oxfam 2,000

Baker Productions plc had purchased its factory premises on 1 May 1998 for £140,000 from another UKcompany, which had purchased the factory new on 1 August 1995 for £100,000. Both companies have alwaysused the factory for qualifying industrial purposes.

Baker Productions plc had balances brought forward as at 1 April 2003 on its plant and machinery pool and ashort life asset (SLA) of £112,000 and £2,900 respectively. The only transactions affecting these amounts werethe disposal of the SLA on 2 September 2003 for £3,400 and the purchase of a second-hand machine for£20,000 on 1 December 2003. The SLA sold had originally cost £6,000 in May 2001. The company is classedas medium sized for capital allowances purposes and always claims the maximum possible allowances.

In addition to the above Baker Productions plc sold an office complex, which had never been used in thebusiness, for £180,000 in December 2003. This had originally cost £60,000 in August 1985 and had beenextended at a cost of £21,000 in May 1993.

A trading loss of £9,406 and a capital loss of £10,500 were brought forward as at 1 April 2003.

Required:

(i) Calculate the total capital allowances for plant and machinery and the total industrial buildingsallowance (IBA) for Baker Productions plc in respect of the year ended 31 March 2004; (6 marks)

(ii) Calculate the corporation tax payable by Baker Productions plc for the year ended 31 March 2004.(13 marks)

Note: The indexation factors to be used in this question are in the table of rates and allowances.

8



(b) City Merchandise Ltd prepares value added tax (VAT) returns on a quarterly basis. It does not operate the cashaccounting scheme. During the company’s quarter ended 31 March 2004 the following transactions occurred:

Standard rated sales £110,000Zero-rated sales £30,000Standard rated purchases £60,000

The above three amounts are stated exclusive of VAT where applicable.

The company offers a 5% discount to customers who pay within 30 days. This discount is offered on all salesbut only 50% of customers settle within the discount period.

The company also paid the following expenses during the same VAT quarter:

Electricity £4,000Wages £28,000Accountancy fees £1,000Machine repairs £2,500

The above four amounts are stated inclusive of VAT where applicable.

Required:

Calculate the VAT due for the quarter ended 31 March 2004 and state by when this amount must be paid.(6 marks)

(25 marks)

9 [P.T.O.



3 (a) Bobby Jenkins is 44 years old and has taxable income of £28,420 (after deduction of his personal allowance)for the tax year 2003/04.

During the tax year 2003/04 Bobby disposed of the following assets:

18 May 2003: An antique vase was sold for £8,450 net of expenses of sale amounting to £550. The vase hadcost £3,200 in June 1999.

21 October 2003: 2000 shares in ABC Ltd were sold for £15,400. Bobby had originally purchased 2,400shares for £8,100 in May 1998. ABC Ltd had made a 1 for 4 rights issue for £4·50 each in September 2000.Bobby had purchased his full rights entitlement.

19 November 2003: A silver necklace was sold for £2,000. It had originally been purchased in January 1999for £7,500 when it was thought to have originated from a much earlier period than it actually did.

2 March 2004: A watercolour painting was sold for £24,000. This had cost £8,000 in February 1986 and hadan indexed cost of £13,460 in April 1998.

The shares in ABC Ltd were classed as a business asset, the other three assets were all non-business assets.

Required:

Calculate the capital gains tax (CGT) payable by Bobby for the tax year 2003/04 and state when this is duefor payment. (16 marks)

(b) Louise Duncan has for several years run a very successful business as a sole trader. During the next few monthsshe intends to sell some of her business assets and to re-invest in other assets, some of which will have anexpected useful life of 40 years and some of 70 years.

She understands that a relief may be available which would defer any capital gains that may otherwise bechargeable as a result of the above disposals and has asked you for advice.

Required:

Write to Louise stating the relief available, how it affects any replacement assets and outlining the conditionswhich must be fulfilled for the relief to be claimed.

(Use fictitious addresses in your letter. Marks will be awarded for the style and presentation of your answer).(12 marks)

(28 marks)

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4 Amanda Cooke started in business as a self-employed clothes designer on 1 December 2000. She made up her firstset of accounts to 31 May 2001 and annually thereafter. Her first two sets of adjusted Schedule D Case I profits aftercapital allowances were:

Period ended 31 May 2001 £4,260Year ended 31 May 2002 £8,190

During her accounting year ended 31 May 2003 Amanda had the following results:

£ £Turnover 18,000Cost of goods sold (7,300)

–––––––Gross profit 10,700Discounts received 300Bank interest received 450

–––––––11,450

Electricity 810Accountant’s fees 280Depreciation 120Drawings 640Car expenses 1,840 (3,690)

–––––– –––––––Net profit £7,760

––––––––––––––

Amanda works from home and 40% of the electricity cost relates to personal use.

Her car was purchased new in 1998 for £12,000 and had a value of £6,400 when it was introduced into thebusiness on 1 December 2000. She uses the car 60% for business purposes.

Amanda’s only other asset is a sewing machine, which had a written down tax value for capital allowance purposesof £240 on 1 June 2002.

Required:

(a) Calculate the maximum capital allowances that Amanda may claim for the year ended 31 May 2003.(3 marks)

(b) Calculate the adjusted Schedule D Case I profits after capital allowances for the year ended 31 May 2003.(4 marks)

(c) Calculate the assessable Schedule D Case I profits for the four tax years 2000/01 to 2003/04 inclusive.(5 marks)

(d) Calculate the overlap profits for the opening years of assessment. (2 marks)

(14 marks)

End of Question Paper

11



Answers





ACCA Certified Technician Examination – Paper T9(GBR) June 2004 AnswersPreparing Taxation Computations (UK Stream) and Marking Scheme

Marks1 (a) Penny Donald – Income tax assessment – 2003/04

Non-savings Savings Dividend Total£ £ £ £

Salary 46,000 0·5Benefits (w1) 15,088

––––––––61,088

Pension contributions –4,200 1––––––––

Employment earnings 56,888 56,888Building society interest – £2,400 x 100/80 3,000 3,000 1Dividend – £900 x 100/90 1,000 1,000 1

–––––––– ––––––– ––––––– ––––––––Statutory total income (STI) 56,888 3,000 1,000 60,888Personal allowance –4,615 –4,615 0·5

–––––––– ––––––– ––––––– ––––––––Taxable income £52,273 £3,000 £1,000 £56,273

–––––––– ––––––– ––––––– –––––––––––––––– ––––––– ––––––– ––––––––

Tax payable: £1st 1,960 x 10% 196 0·5Next 29,040 * x 22% 6,389 0·5Next 21,273 x 40% 8,509 0·5

––––––––52,273

Savings 3,000 x 40% 1,200 0·5Dividend 1,000 x 32·5% 325 0·5

–––––––– –––––––£56,273 16,619––––––––––––––––

Deducted at sourceBuilding society interest 600 0·5Dividend 100 0·5Pay as you earn (PAYE) 9,165 –9,865 0·5

–––––– –––––––Tax payable £6,754

––––––––––––––

* Basic rate band extended by charitable donation – £28,540 + (£390 x 100/78) = £29,040 1ISA interest not taxable 0·5

Working 1Benefits Car CO2 emission 242

1st –155––––––

87 0·5––––––––––––

87/5 17 (rounded down) 0·5

15 + 17 = 32% 0·5

£21,000 x 32% £6,720 1––––––––––––––

Fuel £14,400 x 32% £4,608 1––––––––––––––

Parking Exempt 1

Medicalinsurance Cost of providing £800 1

––––––––––––––

Nursery Cost of providing £2,500 1––––––––––––––

Computer £4,800 x 20% 9601st –500 £460 2

–––––– ––––––––––––––Total benefits 15,088

–––––––––––––– ––––Total 18

15



Marks(b) (i) P60 31 May 2004 2

(ii) P11D 6 July 2004 2(iii) 30 September 2004 1

––––Total 5

(c) National insurance contributions (NIC)Adrian Class 1 1st £4,615 nil 0·5

Next £26,325 x 11% 2,896 1Next £7,060 x 1% 71 1

–––––––£2,967––––––––––––––

Modern Fashions plcClass 1 1st £4,615 nil 0·5

Next £33,385 x 12·8% 4,273 1Class 1A £2,400 x 12·8% 307 1

–––––––£4,580–––––––––––––– ––––

Total 5

(d) Schedule A incomeRent receivable (accruals basis):April–December – 9/12 x £7,200 5,400January–March – 3/12 x £7,800 1,950 7,350 1

––––––Expenditure:Water rates 380 0·5Agent’s fees 780 0·5Decoration 1,250 0·5Interest 2,500 0·5Wear and tear(£7,350 – £380) x 10% 697 –5,607 1·5

–––––– –––––––Assessable amount £1,743

––––––––––––––

Kitchen units are regarded as capital expenditure and is not allowed as a deduction. 0·5––––

Total 5––––

Total answer 1 33

2 (a) (i) Baker Productions plc – capital allowances for year ended 31 March 2004P & M SLA Allowances

£ £ £Balances b/forward 112,000 2,900Disposal –3,400 0·5

–––––––– –––––––112,000 –500

Balancing charge 500 –500 1WDA – 25% –28,000 28,000 0·5

–––––––– –––––––84,000 0

Purchase 20,000 0·5FYA – 40% –8,000 8,000 0·5

–––––––– ––––––– ––––––––£96,000 nil–––––––– ––––––––––––––– –––––––

Total capital allowances £35,500––––––––––––––––

16



MarksIndustrial buildings allowance (IBA)

Lower of cost or second-hand value – £100,000

Remaining tax life – 1 May 1998 – 31 July 2020 = 22·25 yrs

£100,000 = £4,494 3–––––––––

22·25

Total allowances: £35,500 + £4,494 = £39,994–––––––––––––––– ––––

Total 6

(ii) Baker Productions plc – Corporation tax payable for year ended 31 March 2004£ £

Adjusted trading profit 262,400 0·5Less capital allowances –39,994 0·5

–––––––––Adjusted Schedule D Case I profit 222,406Loss brought forward –9,406 1

–––––––––213,000

Rent 24,000 0·5Schedule D Case III (£8,000 + £14,000) 22,000 1Capital gain (w1) 41,517Capital loss brought forward –10,500 31,017 1

––––––––– –––––––––290,017

Charge on income –2,000 1–––––––––

Profit chargeable to corporation tax (PCTCT) 288,017Franked investment income (FII) (£5,400 x 100/90) 6,000 1

–––––––––Profits £294,017

––––––––––––––––––

Dividend from Street Industries Ltd is not taken into account 1

Tax payable: ££288,017 x 30% 86,405 1(£750,000 – £294,017) x 288,017 x 11/400 –12,284 1

––––––––294,017

––––––––£74,121––––––––––––––––

Working 1 – Gain £ £Proceeds 180,000 0·5Cost 60,000 0·5Extension 21,000 –81,000 0·5

––––––– ––––––––99,000

Indexation allowance:£60,000 x 0·866 –51,960 0·5£21,000 x 0·263 –5,523 0·5

––––––––£41,517––––––––––––––––

Working 2 – Tax thresholds

£1,500,000 = £750,000–––––––––––

2

£300,000 = £150,000 1––––––––––

2––––

Total 13

17



Marks(b) City Merchandise Ltd – Value Added Tax (VAT) for quarter ended 31 March 2004

£ £Standard rated sales – £110,000 x 95% x 17·5% 18,288 2Standard rated purchases – £60,000 x 17·5% 10,500 0·5Electricity – £4,000 x 7/47 596 0·5Accounting – £1,000 x 7/47 149 0·5Repairs – £2,500 x 7/47 372 –11,617 0·5

–––––– ––––––––Amount payable £6,671

––––––––––––––––

Wages are outside the scope of VAT 1

Payable by: 30 April 2004 1––––

Total 6––––

Total answer 2 25

3 (a) Bobby Jenkins – Capital gains tax for the tax year 2003/0418 May 2003 £

Net proceeds 8,450Cost –3,200

–––––––£5,250 1––––––––––––––

Marginal relief(£9,000 – £6,000) x 5/3 £5,000 2

––––––––––––––

Lower gain taken £5,000 0·5––––––––––––––

Taper relief: 3 years – 95%

21 October 2003Working:

Shares Cost£

Purchased 2,400 8,100Rights issue 600 2,700

––––––– –––––––3,000 10,800

Disposal –2,000 –7,200 (average cost) 2––––––– –––––––

1,000 £3,600––––––– –––––––––––––– –––––––

Gain: £Proceeds 15,400Cost –7,200

–––––––£8,200 1––––––––––––––

Taper relief: 5 years – 25% (business asset)

19 November 2003 £Deemed proceeds 6,000Cost –7,500

––––––––Loss –£1,500 2

––––––––––––––––

2 March 2004 £Proceeds 24,000Indexed cost –13,460

––––––––£10,540 1––––––––––––––––

Taper relief: 5 years + 1 bonus year = 6 years – 80%

18



MarksSummary:

The loss should be used against the gain entitled to the lowest amount of taper relief (i.e. gain 1) 1£

(£5,000 – £1,500) x 95% 3,325 1£8,200 x 25% 2,050 0·5£10,540 x 80% 8,432 1

–––––––13,807

Annual exemption –7,900 0·5–––––––

Total chargeable gains £5,907––––––––––––––

Tax payable: £1st £2,080 (£30,500 – £28,420) x 20% 416 1Remaining £3,827 (£5,907 – £2,080) x 40% 1,531 0·5

–––––––£1,947––––––––––––––

Due date: 31 January 2005 1––––

Total 16

(b) A StudentAccountants OfficeSomewhereEnglandTel:

Louise DuncanAt HomeElsewhereEngland

Reference:

June 2004

Dear Louise

DEFERMENT OF CAPITAL GAINS TAX

With reference to your query the relief that you refer to is replacement ofbusiness asset relief, which is more commonly known as rollover relief. 1The relief works by deducting the gain on the original disposal from the costof the replacement asset and subsequently using this reduced cost for the calculation of the gain on the future disposal of that replacement asset. 1

The conditions which must be fulfilled are:Both the sold and purchased assets must be used in the business.Both assets must be within specified categories (mainly buildings and fixed plantand machinery).The replacement must be purchased within the time frame of one year beforeand up to three years after the sale of the original asset.All the proceeds of the sale must be reinvested or the relief is restricted bythe amount not reinvested. 4

If the asset purchased is a depreciating asset such as plant and machinery then a modified version of the relief known as holdover relief is available. The difference 1here is that the gain is not deducted from the replacement cost but is simply deferred until the earliest of the following three events:The new asset is soldThe new asset is no longer used in the businessThe tenth anniversary of the purchase of the new asset 3

If you require further assistance please do not hesitate to contact me.

Yours sincerely

A Student Presentation 2––––

Total 12––––

Total answer 3 28

19



Marks4 (a) Amanda Cooke – Capital allowances for the year ended 31 May 2003

Car £ £Period ended 31 May 2001

Value 6,400WDA – 25% x 6/12 –800

–––––––5,600 1

Year ended 31 May 2002WDA – 25% –1,400 0·5

–––––––4,200

Year ended 31 May 2003WDA – 25% –1,050 x 60% 630 1

–––––––£3,150––––––––––––––

Sewing machineYear ended 31 May 2003

Balance b/forward 240WDA – 25% –60 60 0·5

––––––– ––––––£180

––––––––––––––Total £690

–––––––––––– ––––3

(b) Amanda Cooke – Adjusted Schedule D Case I profit for the year ended 31 May 2003

£ £Net profit per accounts 7,760less: Bank interest –450 0·5

–––––––7,310

Add back:Electricity – £810 x 40% 324 1Depreciation 120 0·5Drawings 640 0·5Car expenses – £1,840 x 40% 736 1,820 1

––––– –––––––9,130

Capital allowances –690 0·5–––––––£8,440–––––––––––––– ––––

4

(c) Amanda Cooke – Opening year assessments

2000/01 Actual1 December 2000–5 April 20014/6 x £4,260 £2,840 1·5

––––––––––––––

2001/02 1st 12 months1 December 2000–30 November 2001£4,260 + (6/12 x £8,190) £8,355 1·5

––––––––––––––

2002/03 c/yr basis – 31 May 2002 £8,190 1––––––––––––––

2003/04 c/yr basis – 31 May 2003 £8,440 1–––––––––––––– ––––

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Marks(d) Amanda Cooke – Overlap profits

£Assessments 2000/01 2,840

2001/02 8,3552002/03 8,190

–––––––19,385

Earned –4,260–8,190

–––––––£6,935 2–––––––––––––– ––––

total answer 4 14

21





ADVANCED LEVEL

TUESDAY 14 DECEMBER 2004

QUESTION PAPER



Tax rates and allowances are on pages 3–5

Do not open this paper until instructed by the supervisor

This question paper must not be removed from the examinationhall


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This is a blank page.The question paper begins on page 3.

2




Income Tax

Starting rate £1–£1,960 10%Basic rate £1,961–£30,500 22%Higher rate £30,501 and above 40%


Personal allowance

£Personal allowance 4,615

Company car benefit


Car fuel benefit


Authorised mileage allowances





Subject to earnings cap of £99,000


5%

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Capital allowances



– information and communicationtechnology equipment(until 31 March 2004) 100



Corporation tax

Financial year 2003 2002Starting rate 0% 0%Small companies rate 19% 19%Full rate 30% 30%Starting rate lower limit £10,000 £10,000Starting rate upper limit £50,000 £50,000Small companies lower limit £300,000 £300,000Small companies upper limit £1,500,000 £1,500,000Marginal relief fraction:


Marginal relief


Value added tax



Individuals £7,900

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% %0 100 1001 50 1002 25 1003 25 954 25 905 25 856 25 807 25 758 25 709 25 6510 25 60





Class 1A 12·8

Class 2 £2·00 p.w.





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1 (a) Tony Gray is 43 years old and is employed as an advertising manager for Ads4U Ltd, a UK resident company.

It is now 14 June 2004 and Tony is preparing his tax return for the tax year 2003–04. He has gathered togetherthe following documents and other information for that year:

– Form P60 showing taxable employment income of £38,460 and income tax deducted under PAYE of£7,442

– Form P11D showing total taxable benefits received of £2,290

– A bank statement from County Bank plc showing net interest credited of £280

– An interest statement from Town Building Society showing net interest credited of £360

– A statement from City Building Society showing interest credited of £120 from an individual savings account(ISA)

– Dividend vouchers showing cash dividends received totalling £270

– A letting agent’s statement showing taxable Schedule A rent of £820

– An amount of £312 was paid to a registered charity under the gift aid scheme

Required:

(i) Calculate Tony’s income tax payable for the tax year 2003–04. (11 marks)

(ii) State the two ways in which the Inland Revenue may collect any tax owing for the tax year 2003–04.(3 marks)

(iii) Calculate Tony’s total Class 1 national insurance contributions (NIC) for the tax year 2003–04.(3 marks)

(iv) Calculate the total employer’s Class 1 and Class 1A NIC paid by Ads4U Ltd in respect of Tony for thetax year 2003–04. (3 marks)

(b) Tony’s wife Trudy is also employed by Ads4U Ltd earning in excess of £35,000 every year. During the tax year2003–04 she received the following benefits:

– A 2,000 cc commercial van, first registered in August 2002, used privately for 40% of the time. This wasmade available for Trudy’s use for the whole of 2003–04. Ads4U Ltd paid for all of the running costsincluding petrol, which amounted to £600 for the year.

– A home entertainment system. This was first provided for Trudy to use at home on 6 April 2001, the dateit was purchased by her employer at a cost of £1,200. The system was given to Trudy to keep on 6 October2003 when it was worth £300.

– An allowance of £14 per night to cover miscellaneous expenses for overseas business trips totalling 80 nights.

– Luncheon vouchers amounting to £336 in respect of 224 working days.

– A mileage allowance of 55p per mile for the 6,000 business miles travelled by Trudy in her own car.

Required:

Calculate the total value of Trudy’s taxable benefits for the tax year 2003–04. (9 marks)

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(c) Trudy is 41 years old. She has never previously contributed to a personal pension plan, but feels it is now timeto think about her retirement.

Her net relevant earnings (NRE) for the past six tax years have been:

1998–1999 £41,0001999–2000 £43,0002000–2001 £38,0002001–2002 £42,0002002–2003 £41,0002003–2004 £42,000

It is now 20 September 2004.

Required:

Advise Trudy of:

(i) The maximum amount that she may pay into a private pension plan for the tax year 2003–04.(2 marks)

(ii) The latest date by which the premium must be paid. (1 mark)

(iii) How tax relief will be given for the contributions paid. (2 marks)

(34 marks)

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2 (a) UK Fabrics Ltd has no associated companies and has previously drawn up its accounts to 31 December eachyear. During 2003 the company decided to change its permanent accounting year-end to 31 March.

The following information is provided in respect of the 15-month period of account ending 31 March 2004:

£ £Turnover 3,410,000Cost of sales (1,600,000)

––––––––––Gross profit 1,810,000Profit on sale of an asset (note 1) 141,000Rent received (note 2) 168,000Depreciation 70,000Wages 320,000Power and lighting costs 48,000Increase in general provision for bad debts 18,000Miscellaneous expenses (note 3) 28,000 (484,000)

–––––––– ––––––––––Net profit £1,635,000

––––––––––––––––––––––

Notes:

1. The profit shown is the gain, after accounting for depreciation, on the sale of an unwanted showroom for£267,000 in August 2003. The showroom had originally been purchased for £210,000 in October 1999.The indexation factor for October 1999 to August 2003 is 0·064.

2. The rent received is in respect of an office block leased to another UK resident company for £12,000 permonth. The unpaid amount is due in April 2004.

3. The amount of £28,000 comprises:£

Legal fees in respect of trade debt collection 5,000Customer entertainment 2,000Gifts of food hampers to customers valued at £60 each 3,000Legal fees in respect of the renewal of a 40 year lease on its factory 3,500Office expenses (all allowable) 14,500

––––––––£28,000––––––––––––––––

4. The tax written down value of plant and machinery qualifying for capital allowances as at 1 January 2003was £280,000. During the 15 months ending 31 March 2004 the company purchased a machine for£40,000 on 14 May 2003 and a car (which is not a low emission car) for £9,000 on 2 February 2004.An old machine, which had previously cost £5,000 in May 2002 was sold for £4,000 on 14 August 2003.The company is classed as medium sized for capital allowances purposes.

Required:

For each of the two tax accounting periods comprising UK Fabric Ltd’s fifteen month period of accountending 31 March 2004:

(i) Calculate the maximum capital allowances available. (5 marks)

(ii) Calculate the adjusted Schedule D Case I profit (after capital allowances). (6 marks)

(iii) Calculate the corporation tax payable. (8 marks)

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(b) You are a tax technician working for AccountsRUs, a small accountancy firm. Your line manager has asked youto reply to a letter, received on 6 December 2004, from a new client.

The letter is from John Starr, the managing director of Help4U Ltd, a newly formed company situated in Leeds.He has asked for advice on the value added tax (VAT) registration rules.

Required:

Draft a letter to John Starr giving brief details of the compulsory registration rules for VAT.

Your letter should include:

– details of when compulsory registration for VAT is due;– the dates by which Customs and Excise must be notified of registration;and– the effective date of registration.

(Details of voluntary registration for VAT and the rules on deregistration from VAT, are not required.)

Marks will be awarded for the style and presentation of your answer.(8 marks)

(27 marks)

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3 (a) Amanda Perkins is 29 years old and is a UK resident. During the tax year 2003–04 she made the followingdisposals of capital assets:

17 August 2003: Four acres of land were sold for a gross amount of £80,000. An auctioneer’s fee of 10% wascharged on the disposal. The land had been part of a ten-acre plot that had cost £120,000, in September 1999.The market value of the remaining six acres was £240,000, in August 2003. The land has never been used asa business asset.

15 November 2003: A house, which had never been her main residence, was sold for £290,000. It had cost£100,000 in May 1984 and had an indexed cost of £186,000 on 6 April 1998. The house has never beenused as a business asset.

14 January 2004: 2,000 shares in APC Ltd were sold for £3,500. Amanda’s purchases of APC Ltd shares havebeen:

14 September 1993: 1,000 shares for £50016 November 2000: 500 shares for £55019 October 2003: 500 shares for £77520 January 2004: 200 shares for £300

The indexed value of the FA 1985 pool on 6 April 1998 was £640.

The shares are classed as a business asset.

Amanda had a capital loss of £8,500 bought forward as at 6 April 2003.

Required:

Calculate Amanda’s net taxable gains for the tax year 2003–04. (You are not required to calculate the capitalgains tax payable.) (16 marks)

(b) Amanda’s father, Harry, owns a small shop, which he has always used as a business asset. It cost him £90,000in October 1999.

On 14 February 2004 he sold the shop to Amanda for £115,000 when it had a market value of £185,000.

Required:

(i) Calculate Harry’s chargeable gain on the disposal of the shop assuming that holdover relief is claimedon the gift of the business asset. (4 marks)

(ii) State Amanda’s base cost for future capital gains tax purposes. (1 mark)

(21 marks)

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4 (a) Charles, Meg and Rodney have been in partnership for several years making up their accounts to 31 Decemberannually. Profits have always been shared equally after allocation of salaries of £10,000 and £8,000 to Charlesand Meg respectively and interest on capital of 5% to each of the three partners.

The partners have capital invested amounting to:

Charles £20,000Meg £16,000Rodney £12,000

On 30 June 2003 Rodney left the partnership and withdrew his capital to start his own business. The remainingtwo partners continued with the same salaries and interest on capital, sharing any balance equally betweenthem.

Rodney had overlap profits of £6,000 available from the opening years of the partnership.

The adjusted profit of the partnership for tax purposes for the accounting year ending 31 December 2003 was£120,000.

Required:

(i) Calculate the profit share attributable to each partner for the accounting period ending 31 December2003. (8 marks)

(ii) Calculate Rodney’s Schedule D Case I profit for his final year of assessment. (2 marks)

(b) Rodney started his new business on 1 August 2003 and made up his first set of accounts for the period ended31 March 2004.

He purchased a new factory for use in the business on 1 September 2003, which was taken into industrial useimmediately. The factory was purchased for £362,000.

The cost breakdown was:£

Land 90,000Factory structure 180,000Legal fees 10,000Tunnelling 12,000Administration office 70,000

–––––––––Total £362,000

Required:

(i) Calculate the allowable cost for industrial buildings allowance (IBA) purposes. (6 marks)

(ii) Calculate the IBA available for the accounting period ending 31 March 2004. (2 marks)

(18 marks)


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Answers





ACCA Certified Accounting Technician Examination – Paper T9(GBR) December 2004 AnswersPreparing Taxation Computations (UK Stream) and Marking Scheme

Marks1 (a) (i) Tony Gray – Tax payable 2003–04

NonSavings Savings Dividend Total

£ £ £ £Salary 38,460 0.5Benefits 2,290 0.5

––––––––Employment income 40,750 40,750Schedule A rent 820 820 0.5Bank interest (£280 x 100/80) 350 350 1Building society interest (£360 x 100/80) 450 450 1Dividend (£270 x 100/90) 300 300 1

–––––––– ––––– ––––– ––––––––Statutory total income (STI) 41,570 800 300 42,670Personal allowance –4,615 –4,615 0.5

–––––––– ––––– ––––– ––––––––Taxable income £36,955 £800 £300 £38,055

–––––––– ––––– ––––– –––––––––––––––– ––––– ––––– ––––––––

Note: ISA interest is tax free 1

Tax payable: £ £ £1st 1,960 x 10% 196 0.5Next 28,940 * x 22% 6,367 0.5Next 6,055 x 40% 2,422 0.5

–––––––36,955

Savings 800 x 40% 320 0.5Dividend 300 x 32·5% 97 0.5

––––––9,402

Tax deducted at source:Savings (£70 + £90) 160 0.5Dividend 30 0.5PAYE 7,442 –7,632 0.5

–––––– ––––––£1,770––––––––––––

*Basic band extended(£30,500 – £1,960) + (£312 x 100/78) = £28,940 1

–––11

(ii) The outstanding amount can be settled in one of two ways:

(1) Full settlement on or before 31 January 2005 1

(2) Collected by adjusting the 2005–06 tax code, provided that the tax return is received by theInland Revenue on or before 30 September 2004 2

–––Note: this method of collection can only be used if the amount owed is less than £2,000 3

(iii) Tony Gray – Class 1 NIC

(£30,940 – £4,615) x 11% 2,896 1.5(£38,460 – £30,940) x 1% 75 1.5

–––––––£2,971–––––––––––––– –––

3

(iv) Ads4U Ltd

Class 1 (£38,460 – £4,615) x 12·8% 4,332 1.5Class 1A £2,290 x 12·8% 293 1.5

–––––––£4,625–––––––––––––– –––

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Marks(b) Trudy Gray – Benefits 2003–04

Van £Statutory benefit 500 1Note: petrol is included in the van benefit 0.5

Entertainment system£

Original cost 1,200Assessments for:2001–02 –2402002–03 –2402003–04 (6 months only) –120 120

–––––£600 2.5––––––––––

Current market value £300 0.5––––––––––

Higher of the two 600 0.5Overseas expenses

£14 a night exceeds the statutory limit of £10therefore the full amount is taxable 1,120 1.5

Luncheon vouchers£336 – (224 x 15p) 302 1

Mileage(55p – 40p) x 6,000 miles 900 1.5

––––––– –––Total benefits £3,542 9

––––––––––––––

(c) (i) Trudy Gray – Pension contributions 2003–04Take the highest NRE of the current year and previous five years = £43,000Age at start of tax year 2003–04 = 41 yearsApplicable percentage therefore = 20%Maximum contribution = £43,000 x 20% £8,600 2

––––––––––––––

(ii) Payable by 31 January 2005 1

(iii) Premiums are paid to the pension provider net of tax at 22% 1

Higher rate relief is given by extending the basic rate band by the gross pension contribution 1–––5

Total 34

2 (a) (i) Capital allowances – UK Fabrics LtdP & M CAsPool

£ £January–December 2003

Balance b/fwd 280,000Disposal –4,000 1

–––––––––276,000

WDA x 25% –69,000 69,000 1–––––––––

207,000Purchase 40,000FYA x 40% –16,000 16,000 1

––––––––– –––––––––Balance c/fwd £231,000

––––––––––––––––––Total allowances £85,000

––––––––––––––––––January–March 2004

Balance b/fwd 231,000Purchase (No FYA) 9,000 0.5

–––––––––240,000

WDA x 25% x 3/12 –15,000 15,000 1.5––––––––– –––––––––

Balance c/fwd £225,000–––––––––––––––––– –––

Total allowances £15,000 5––––––––––––––––––

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Marks(ii) Adjusted Schedule D Case I profits – UK Fabrics Ltd

£Net profit per accounts 1,635,000Deduct:

Profit on sale of asset 141,000 0.5Rental income 168,000 –309,000 0.5

–––––––– –––––––––––1,326,000

Add back:Depreciation 70,000 0.5Increase in bad debt provision 18,000 0.5Entertainment of customers 2,000 0.5Gifts (food hampers) 3,000 93,000 0.5

–––––––– –––––––––––Adjusted profits £1,419,000

––––––––––––––––––––––

Note: legal fees on the renewal of a short lease and trade debt collection are allowable expenses 1

Split: Jan–Dec Jan–Mar2003 2004

£ £Adjusted profit (12:3) 1,135,200 283,800 1Capital allowances (part (i)) –85,000 –15,000 1

––––––––––– –––––––––Adjusted Schedule D Case I profits £1,050,200 £268,800

––––––––––– –––––––––––––––––––– ––––––––– –––6

(iii) Corporation tax payable – UK Fabrics LtdJan–Dec Jan–Mar

2003 2004£ £

Schedule D Case I profit 1,050,200 268,800Schedule A rent (accruals basis) 144,000 36,000 2Chargeable gain (W1) 43,560 2

––––––––––– –––––––––Profits chargeable to corporation tax £1,237,760 £304,800

––––––––––– –––––––––––––––––––– –––––––––

Tax payable:January–December 2003:£1,237,760 x 30% 371,328(£1,500,000 – £1,237,760) x 11/400 –7,212

–––––––––––£364,116 1.5

––––––––––––––––––––––January–March 2004:£304,800 x 30% 91,440(£375,000 – £304,800) x 11/400 –1,930

–––––––––£89,510 1.5

––––––––––––––––––

Workings:1. Gain £

Proceeds 267,000Cost –210,000

–––––––––57,000

Indexation allowance£210,000 x 0·064 –13,440

–––––––––£43,560

––––––––––––––––––

2. Upper limits for three months ending 31 March 2004£1,500,000 x 3/12 = £375,000 1£300,000 x 3/12 = £75,000

–––8

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Marks(b) AccountsRUs Ltd

LeedsLS19 4PSTel: 01977 765432

8 January 2004

Reference: XXX

John StarrHelp4U LtdLeedsLS23 5TH

Dear Mr Starr

VAT REGISTRATION

I reply to your letter of 6 January 2004 concerning the rules of compulsory VAT registration.

Compulsory registration is required when either one of the two tests outlined below is met:

(1) Within any continuous period, not exceeding 12 months, the cumulative taxable supplies exceedthe VAT threshold of £56,000 1

(2) Within any 30 day period alone it is expected that taxable supplies will exceed the VAT threshold of£56,000 1

In the case of (1) above you are required to notify Customs and Excise within 30 days of the end of thequalifying period and in the case of (2) before the end of that 30 day period. 2

Registration will be effective in the case of (1) above from the end of the month following the month inwhich the £56,000 was exceeded. In the case of (2) registration will be effective from the start of the30 day period. 2

I hope this answers your queries but if I can be of any further assistance please do not hesitate to ringme on the above number.

Yours sincerelyA Tax Technician

Presentation 2–––8

–––Total 27

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Marks3 (a) Amanda Perkins – Chargeable gains 2003–04

Land £Proceeds 80,000Less fees (10%) –8,000

–––––––––72,000 1

Cost

£120,000 x80,000

–30,000 2–––––––––––––––––80,000 + 240,000

–––––––––£42,000

––––––––––––––––––Taper relief 3 yrs: 95% 0.5

HouseProceeds 290,000Indexed cost –186,000

–––––––––£104,000 1––––––––––––––––––

Taper relief 5 yrs + 1 bonus: 80% 0.5Shares

Matched with January 2004 (next 30 days) 0.5Proceeds 200/2,000 x £3,500 350Cost –300

–––––––––£50 1

––––––––––––––––––No taper relief

Matched with October 2003 (purchases since 6 April 1998 – LIFO basis)Proceeds 500/2,000 x £3,500 875Cost –775

–––––––––£100 1

––––––––––––––––––No taper relief

Matched with November 2000 (purchases since 6 April 1998 – LIFO basis)Proceeds 500/2,000 x £3,500 875Cost –550

–––––––––£325 1

––––––––––––––––––Taper relief 3 years: 25% 0.5

Matched with September 1993 (FA 85 pool)Proceeds 800/2,000 x £3,500 1,400Indexed cost 800/1,000 x £640 –512

–––––––––£888 1.5

––––––––––––––––––Taper relief 5 years: 25% 0.5

Use of lossAgainst gains with lowest taper reliefShares (£50 + £100) – £150 NilLand £42,000 – £8,350 £33,650 2

Summary of gainsLand £33,650 x 95% 31,967 0.5House £104,000 x 80% 83,200 0.5Shares £325 x 25% 81 0.5Shares £888 x 25% 222 0.5

–––––––––115,470

Annual exemption –7,900 1–––––––––

Net taxable gains £107,570–––––––––––––––––– –––

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Marks(b) (i) Harry Perkins – Chargeable gain

£Proceeds (deemed) 185,000Cost –90,000

––––––––95,000 1

Chargeable now(£115,000 – £90,000) –25,000 1.5

––––––––Deferred gain – gift relief £70,000 0.5

––––––––––––––––Taper relief 4 years: 25%Chargeable gain £25,000 x 25% £6,250 1

––––––––––––––––

(ii) Amanda Perkins base cost£185,000 – £70,000 = £115,000 1

–––––––––––––––– –––5

–––Total 21

4 (a) (i) Share of partnership profitsCharles Meg Rodney Total

£ £ £ £January–June 2003Salary 5,000 4,000 9,000 1Interest on capital 500 400 300 1,200 1.5Profit share 16,600 16,600 16,600 49,800 1.5

–––––––– –––––––– –––––––– ––––––––––22,100 21,000 16,900 60,000

–––––––– –––––––– –––––––– ––––––––––July–December 2003Salary 5,000 4,000 9,000 1Interest on capital 500 400 900 1Profit share 25,050 25,050 50,100 1

–––––––– –––––––– –––––––– ––––––––––30,550 29,450 60,000

–––––––– –––––––– –––––––– ––––––––––Total £52,650 £50,450 £16,900 £120,000 1

–––––––– –––––––– –––––––– –––––––––––––––––– –––––––– –––––––– –––––––––– –––8

(ii) Rodney – Schedule D Case I assessment2003–04 Balance of profit 16,900 1

Overlap profits –6,000 1––––––––£10,900–––––––––––––––– –––

2

(b) (i) Allowable cost – Industrial buildings allowance£

Factory cost 180,000 1Legal fees 10,000 1Tunnelling 12,000 1

–––––––––£202,000––––––––––––––––––

Note:Land is never allowed 1Office – 25% rule applies70,000

x 100 25·74%––––––––272,000more than 25% therefore not allowed 2

–––6

(ii) Industrial buildings allowance available4% x £202,000 = £8,080£8,080 x 8/12 = £5,387 2

–––––––––––––– –––Total 18

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ADVANCED LEVEL


QUESTION PAPER







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Income Tax



Personal allowance


Company car benefit


Car fuel benefit







Subject to an earnings cap of £102,000


5%

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Capital allowances





For small businesses only: the rate of plant and machinery first-year allowance is increased to50%. This applies for the period from 1 April 2004 to 31 March 2005 (6 April 2004 and 5 April 2005 for unincorporated businesses).


Corporation tax



Marginal relief


Value added tax



Individuals £8,200

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Class 1A 12·8

Class 2 £2·05 p.w.





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1 (a) Ravi Patel is a computer expert working for a UK resident company receiving an annual salary of £39,000.

During the tax year 2004–05 Ravi received the following benefits:

– The use of a company owned apartment. This had cost the company £160,000 in May 2003 and has beenoccupied by Ravi since that date. The apartment has an annual rateable value of £4,100 and Ravi pays thecompany £2,500 per year for its use. The occupation of the apartment is not regarded as job-related.

– Furniture, valued at £12,000, is provided for use in the apartment. During 2004–05 the company paiddecorating bills of £550 and wages to a cleaner amounting to £1,500.

– A 2·0 litre diesel BMW car, with a CO2 emission rate of 209g per km and a recommended list price of£26,500. This was first provided for Ravi’s use in July 2003. Accessories amounting to £800 were addedwhen the car was first provided. Ravi contributed £4,000 towards the capital cost of the car. The car is used20% for business use and 80% for private use. The company pays for all the fuel but Ravi contributes £40per month towards this cost.

In addition to the above the company also paid £750 to the local golf club in respect of Ravi’s 2004–05membership and refunded £1,325 to Ravi in respect of actual business expenses incurred whilst he was awayon official trips.

Ravi had agreed with the company that it would deduct £20 a month during the whole of 2004–05 in respectof charitable payments under the payroll deduction scheme.

Ravi paid £234 (net) per month to a private pension plan. In February 2005 he paid an additional lump sumof £2,340 (net) to the same plan. In December 2004 he paid £180 fees to an Inland Revenue approvedprofessional body related to his employment.

Ravi paid tax of £7,808 under the PAYE system for 2004–05.

In addition to the above Ravi received the following income during 2004–05:

– Bank interest of £240– Building society interest of £190– Dividends from shares held in UK companies amounting to £280– Dividends from investments held in an Individual Savings Account

(ISA) amounting to £145.

The above amounts are all stated at the cash amounts received.

Required:

Calculate the income tax payable by Ravi for the tax year 2004–05. (23 marks)

(b) Ravi’s wife, Neha, started her own business on 1 October 2002. Her first sets of adjusted profits after capitalallowances were:

Period to 30 April 2003 1£8,680Year to 30 April 2004 £18,720Year to 30 April 2005 £22,080

Required:

(i) Calculate Neha’s Schedule D Case I profits for her first three years of assessment. You are not requiredto calculate any overlap profit. (5 marks)

(ii) Calculate Neha’s total national insurance contributions for 2004–05. (3 marks)

(iii) State when the income tax for 2004–05 will be paid and how each payment will be calculated. You arenot required to calculate the actual amount of each payment. (3 marks)

(34 marks)

6



2 (a) Thompson Brothers Ltd is a UK resident company with no associated companies. Up to 2004 the company hadalways made up its accounts to 31 March annually but because of new accounting policies the company decidedto change its accounting date to 31 December.

The adjusted trading profit before capital allowances for the 9-month period ended 31 December 2004 was£256,663

Other income and expenditure received and paid in the same period was:

Income:Dividends from UK companies £18,000Rental income (note 1) £10,000Debenture interest (note 2) £3,000Capital profit (note 3) £26,000

Expenditure:Interest for late payment of tax £2,000Gift aid payment to a UK registered charity £7,000

Notes:1 The rent was received in two equal amounts on 1 April 2004 and 1 October 2004 and was in each case

in respect of the following six months.

2 Debenture interest is received six monthly on 31 March and 30 September each year and is in respect of aholding of £120,000 5% Loan Stock.

3 The profit shown is in respect of an unused office block purchased for £60,000 in December 2003 andsold for £86,000 in October 2004. (Indexation factor December 2003 – October 2004: 0·028).

A capital loss of £4,000 was brought forward as at 1 April 2004.

The company purchased a new factory in September 2004 for £150,000, which included £30,000 for land.The company has not claimed rollover relief.

The tax written down value on the company’s plant and machinery pool as at 1 April 2004 was £140,000.During the period ended 31 December 2004 the company purchased plant for £80,000 and a new car (whichis not a low emission car) for one of the directors private use at a cost of £22,000. An old machine, which hadoriginally cost £28,000, was sold for £23,000 in November 2004.

The company is classified as medium sized for capital allowances purposes.

Required:

(i) Calculate Thompson Brothers Ltd’s total capital allowances for both plant and machinery and industrialbuildings for the nine-month period ended 31 December 2004. (7 marks)

(ii) Calculate the corporation tax payable by Thompson Brothers Ltd for the nine-month period ended 31 December 2004. (11 marks)

(b) Parker plc is a large UK resident company. In its accounting year ended 31 March 2005 it had estimated itsprofits chargeable to corporation tax (PCTCT) to be £1,600,000. The company had PCTCT amounting to£1,800,000 in the year to 31 March 2004.

Required:

In respect of the chargeable accounting period ended 31 March 2005.

(i) Calculate the corporation tax payable. (1 mark)

(ii) State the due dates of payment of the tax and the amount of each of those payments. (4 marks)

(23 marks)

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3 (a) Fiona Banks is a UK resident and had the following transactions in capital items during 2004–05:

14 June 2004 – Sold a factory for £228,000. This had originally been purchased in May 1993 for £120,000and had been enlarged at a cost of £35,000 in August 2001. The indexed cost of the factory on 6 April 1998was £138,240. The factory has always been used as a business asset.

11 November 2004 – Sold a painting for £9,870. Auctioneer’s fees of 10% were payable on this amount. Thepainting had been purchased in June 1998 for £2,500. It has never been used as a business asset.

Fiona had unused capital losses brought forward on 6 April 2004 amounting to £3,400.

Fiona’s statutory total income (STI) for 2004–05 was £33,570.

Required:

Calculate the capital gains tax payable by Fiona for the tax year 2004–05. (10 marks)

(b) Jane Bush purchased a non-business asset in September 1999 for £18,000. It was destroyed by a flash floodin November 2004. Jane replaced the asset in March 2005 at a cost of £28,000 having received £29,500compensation from an insurance company.

Required:

(i) Calculate the chargeable gain arising in 2004–05 (3 marks)

(ii) State the base cost of the replacement asset. (1 mark)

(c) Peter Stone purchased his main residence on 1 July 1984 for £54,500. He moved into the property immediatelyand occupied it until he moved abroad to take up employment on 1 September 1986. He returned to the UKand reoccupied the property on 1 May 1991. He remained in the property until 1 January 1992 when he movedto another UK city on a temporary work secondment. On 1 January 1997 he returned to the property. On the 1 March 1999 he moved to his parents home to take care of his sick mother. The property was finally sold on1 July 2004. Peter never returned to the property after 1 March 1999.

Required:

Using a tabular format state, giving reasons in each case, the deemed and actual periods of occupation andthe periods of non-occupation of the property. (8 marks)

(22 marks)

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4 (a) Susan Chance runs a small business from home which she commenced in 1996. Her recent adjusted tradingresults (after capital allowances) have been;

Year ended 31 December 2002 £12,500Year ended 31 December 2003 £(15,000) lossYear ended 31 December 2004 £3,400

Susan had other income of £8,000 in 2002-03, £4,000 in 2003–04 and £26,000 in 2004–05.

She has written to you asking for advice on the use of the 2003 trading loss.

Required:

Write a letter to Susan, using any fictitious addresses, advising her on the use of the loss. Your letter shouldprovide details of:

– the years in which the loss can be used;– the income it can be used against; and– three planning points to consider when deciding which claim to make.

(Note you are not required to make a final decision or to show any calculations). (8 marks)Presentation (2 marks)

(b) Monty Finch has been trading for the last three years. His annual sales have recently exceeded the VAT thresholdof £58,000 but he has failed to notify Customs and Excise.

Required:

State the amount(s) of late notification penalty that could be applied. (5 marks)

(c) Bob Hawkes operates a jewellery business and is registered for VAT. He received an order for a silver anddiamond necklace on 14 May 2004. A deposit of £350 was received with the order. The order was completedand delivered on 16 July 2004. An invoice was raised and despatched on 20 July 2004 and the final (balancing)payment was received on 31 August 2004.

Bob does not operate the cash accounting scheme.

Required:

State how the tax point for VAT purposes is determined and the date(s) which will apply in this case.(6 marks)

(21 marks)


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ACCA Certified Accounting Technician Examination – Paper T9(GBR) June 2005 Answers andPreparing Taxation Computations (UK Stream) Marking Scheme

Marks1 (a) Ravi Patel – Income tax for 2004–05

NonSavings Savings Dividend Total

£ £ £ £Salary 39,000 0·5Benefits (w1) 22,360

–––––––61,360

Payroll giving scheme(£20 x 12) –240 1Professional fees –180 1

–––––––Employment income 60,940 60,940Bank interest 300 300 1(£240 x 100/80)Building society interest(£190 x 100/80) 237 237 1Dividends(£280 x 100/90) 311 311 1ISA interest – tax free 0·5

––––––– ––––––– ––––––– –––––––STI 60,940 537 311 61,788Personal allowance –4,745 –4,745 0·5

––––––– ––––––– ––––––– –––––––Taxable Income £56,195 £537 £311 £57,043

––––––– ––––––– ––––––– –––––––––––––– ––––––– ––––––– –––––––

Basic rate band extension:

(£31,400 – £2,020) + (£234 x 100/78 x 12) + (£2,340 x 100/78) = £35,980 2

Tax payable: £ £1st 2,020 x 10% 202 0·5Next 35,980 x 22% 7,916 0·5Next 18,195 x 40% 7,278 0·5

–––––––56,195

Savings 537 x 40% 215 0·5Dividends 311 x 32·5% 101 0·5

––––––– –––––––57,043 15,712

Less tax paid:Dividend (10%) 31 0·5Interest (20%) 107 0·5PAYE 7,808 –7,946 0·5

–––––– –––––––Tax payable £7,766

––––––––––––––

WorkingsApartment £Rateable value 4,100 0·5Additional(£160,000 – £75,000) x 5% 4,250 1

–––––––8,350

Contribution –2,500 0.5–––––––£5,850––––––––––––––

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Marks£

Furniture£12,000 x 20% £2,400 1

––––––––––––––Wages and bills£1,500 + £550 £2,050 1

––––––––––––––CarPercentage:CO2 emission 209base level –145 0·5

–––––64

–––––divided by five 12 0·5base level 15 0·5

–––––27

Diesel addition 3 0·5–––––30%

––––––––––List price £26,500 + 800 27,300 0·5Capital contribution –4,000 0·5

––––––––£23,300––––––––

Car £23,300 x 30% £6,990 1––––––––

Fuel £14,400 x 30% £4,320 1––––––––––––––––

(no reduction for fuel contribution)Golf fees £750 1

––––––––––––––Travel expenses tax free 0·5Total benefits £22,360

–––––––– ––––––––––––23

(b) (i) Neha – Schedule D Case I profits2002–03 Actual

1 Oct 02 – 05 Apr 036/7 x £8,680 £7,440 2

2003–04 1st 12 months1 Oct 02 – 30 Sept 03£8,680 + (5/12 x £18,720) £16,480 2

2004–05 CYB Yr ended 30 Apr 04 £18,720 1

–––5

–––(ii) Neha – National insurance contributions

Class 2 £2·05 x 52 107 1

Class 4 £(18,720 – 4,745) x 8% 1,118 2––––––– –––£1,225 3––––––––––––––

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Marks(iii) Neha – Dates of payment

31 January 2005 1Calculated as 50% of the tax for 2003–04

31 July 2005 131 January 2006 Balance of amount due for 2004–05 1

–––3

–––34–––

2 (a) (i) Thompson Brothers Ltd – Capital allowancesPlant and machinery

FYA General Expensive CAspool car

£ £ £ £Balance b/fwd 140,000 0·5Purchases 80,000 22,000 1Disposals –23,000 0·5

–––––––– ––––––––117,000 22,000

WDA – 25% x 9/12 –21,937 21,937 1WDA – £3,000 x 9/12 –2,250 2,250 1

–––––––– ––––––––95,063 19,750

FYA – 40% –32,000 32,000 1Transfer to general pool –48,000 48,000

–––––––– ––––––––Balances c/fwd £143,063 £19,750

–––––––– –––––––– –––––––––––––––– ––––––––Total allowances £56,187

––––––––––––––––Industrial buildings (IBA)Cost (less land) 120,000 1WDA – 4% x 9/12 –3,600 £3,600 1

–––––––– ––––––––£116,400

––––––––

–––––––––––––––––––

Total for plant and machinery and industrial buildings £59,787 7–––––––– –––––––––––

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Marks(ii) Thompson Brothers Ltd – Corporation tax payable for the

period ended 31 December 2004£ £

Adjusted profits 256,663 0·5Capital allowances –59,787 0·5Adjusted Schedule D Case I –––––––– 196,876Schedule A – (9/12 x £10,000) 7,500 1Schedule D Case III:Debenture interest (£120,000 x 5% x 9/12) 4,500 1Interest for late payment of tax –2,000 2,500 1

––––––––Capital gain (w) 24,320loss b/fwd –4,000 20,320 1

–––––––– ––––––––227,196

Charge on income:Gift aid –7,000 0·5

––––––––PCTCT 220,196FII (£18,000 x 100/90) 20,000 1

–––––––––Profits £240,196

––––––––––––––––––Tax payable:£220,196 x 30% 66,059 1

£(1,125,000 – £240,196) x220,196

x 11/400 –22,306 1––––––––240,196

––––––––£43,753––––––––––––––––

Workings:Thresholds: £1,500,000 x 9/12 £1,125,000

£300,000 x 9/12 £225,000 1Gain:

Proceeds 86,000 0·5Cost –60,000 0·5

––––––––––26,000

Indexation allowance£60,000 x 0·028 –1,680 0·5

––––––––– ––––£24,320 11

––––––––– –––––––––––––

(b) Parker plc – Corporation tax year ended 31 March 2005

(i) Tax payable: £1,600,000 x 30%: £480,000 1––––––––– –––––––––––––

(ii) Each instalment is £480,000/4: £120,000 1

Payment dates:14 October 2004 £120,000 (7th month) 114 January 2005 £120,000 (10th month) 114 April 2005 £120,000 (13th month) 114 July 2005 £120,000 (16th month) 1

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Marks3 (a) Fiona Banks – Capital gains tax for the tax year 2004–05

Factory: £Proceeds 228,000 0·5Indexed cost –138,240 1Extension –35,000 0·5

–––––––––£54,760

––––––––––––––––––Taper relief – 25% (6 yrs) 0·5

Painting: £Proceeds 9,870 0·5Auctioneer's fees –987 0·5

––––––––8,883

Cost –2,500 0·5––––––––

£6,383––––––––––––––––

£(9,870 – 6,000) x 5/3 £6,450 1––––––––––––––––

Lower amount taken £6,383 0·5––––––––––––––––

Taper relief 80% (6 yrs) 0·5

Summary:Factory Painting Total

£ £ £Gain 54,760 6,383Loss b/fwd –3,400 1

––––––– –––––––54,760 2,983

Taper relief (25/80%) 13,690 2,386 16,076 1Annual exemption ––––––– ––––––– –8,200 0·5

–––––––£7,876––––––––––––––

Tax payable:Basic rate band left:£31,400 – (£33,570 – £4,745) = 2,575 x 20% 515 1Remainder 5,301 x 40% 2,120 0·5

––––––– –––––––£7,876 £2,635––––––– ––––––– ––––––––––– –––––––

10––––

(b) (i) Jane Bush – Chargeable gain for 2004–05£

Proceeds 29,500Cost –18,000

––––––––11,500

Chargeable now –1,500 (not reinvested)––––––––

Deferred to replacement £10,000 2––––––––––––––––

Taper relief 85% (5 yrs) 0·5Gain £1,500 x 85% £1,275 0·5

––––––––––––––––

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Marks(ii) Base cost of replacement:

£Cost 28,000Deferred –10,000

––––––––£18,000 1–––––––– ––––––––––––

4––––

(c) Peter Stone – Actual and deemed periods of occupationPeriod Occupation Non Reason

Occupationmonths months

010784 – 310886 26 Lived in 1010986 – 300491 56 Working abroad 1010591 – 311291 8 Lived in 1010192 – 311296 60 Working in UK – max 4 years +

Any reason – max 3 years 2010197 – 280299 26 Lived in 1010399 – 300604 36 28 Last 3 yrs – balance for any

reason not counted as not movedback in 2

–––– –––– ––––Totals 212 28 8

–––– –––– ––––22

––––4 (a)

A TechnicianAnyplace

AnywhereSP10 5BN

01794 32163Reference: XXX

Susan ChanceAt HomeSomewhereSN 78 6 DX

Dear Susan

USE OF TRADING LOSS

Thank you for your letter requesting advice on the use of your trading loss.

There are three main ways in which you may use the loss:

(i) using the loss in the same tax year that it was made (i.e. 2003–04) against any other income in that year; or

(ii) using the loss in the previous tax year (i.e. 2002–03) again against any other income in that year; or 3(iii) using the loss in future years but only against income from the same trade.

In the cases of (i) and (ii) the use of the loss is optional and requires you to make an election. The loss can be used in either year in any order as you may stipulate but if a claim is made it must be for either the amount of the loss or the amount of your other income – whichever is the lower. 2

In the case of (iii) no claim is required because the use of the loss is compulsory where either no current or previous years claims are made or there is some loss remaining after these claims.

When deciding on which option to use you should consider the following points:

preserving your personal allowance;saving tax at the highest marginal rate; 3using the loss as soon as possible.

If you require any further assistance please do not hesitate to contact me on the above number.

Yours sincerely

A Technicianpresentation 2

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Marks(b) Monty Finch – VAT penalties

Late notification penalties are a percentage of the net VAT due from the date Monty should have been registered until the date when notification is made: 1

Up to 9 months late: 5% of net VAT dueBetween 9 and 18 months late: 10% of net VAT dueOver 18 months late: 15% of net VAT due 3

A minimum of £50 applies in each case 1––––

5––––

(c) Bob Hawkes – Tax pointsThe basic tax point is generally the earliest of the following dates:

The date of delivery;The date of the invoice; orThe date of payment 3

However if the invoice is issued within 14 days of the delivery date then the invoice date will be applied. 1

Therefore the tax points are:

14 May 2004 for the deposit of £350 and

20 July 2004 for the balance 2––––

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––––

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ADVANCED LEVEL


QUESTION PAPER







Pape

r T9

(GB

R)




2




Income Tax



Personal allowance


Company car benefit

The base level of CO2 emissions is 145 grams per kilometre

Car fuel benefit






Age at start Maximumof tax year percentageUp to 35 17·536 to 45 2046 to 50 2551 to 55 3056 to 60 3561 or more 40



5%

3 [P.T.O.



Capital allowances




– low emission motor cars (CO2 emissions of less– than 120 grams per kilometre 100

For small businesses only: the rate of plant and machinery first-year allowance was increasedto 50% for the period from 1 April 2004 to 31 March 2005 (6 April 2004 to 5 April 2005for unincorporated businesses).


Corporation tax



From 1 April 2004 profits paid out as dividends are subject to a minimum rate of corporationtax of 19%.

Marginal relief

(M – P) x I/P x marginal relief fraction

Value added tax



Individuals £8,200

4





% %1 50 1002 25 1003 25 954 25 905 25 856 25 807 25 758 25 709 25 6510 25 60





Class 1A 12·8

Class 2 £2·05 p.w.





5 [P.T.O.




1 Your name is Harry Knowles and you work as a tax technician for a small tax partnership, Pay and Payne.

Your firm has just taken on three new clients: Newco Ltd and two individuals both of whom work for Newco Ltd.

Your line manager has asked you to deal with the following queries, one from each of the new clients.

(a) Newco Ltd is a recently formed company and is due to make up its first set of accounts for the period 1 April2004 to 31 March 2005. It is aware of the need to complete certain forms as part of the end of year pay as youearn (PAYE) procedures in respect of its employees.

Required:

Write a letter to the Board of Directors of Newco Ltd, giving details of the year end forms required to becompleted under the PAYE procedures and stating by what date(s) these forms need to be submitted to theRevenue.

For the purpose of this part of the question, assume that today’s date is 1 March 2005.

Marks will be awarded for the style and presentation of your answer. (8 marks)

(b) Sami Jenkins, an employee of Newco Ltd, has asked for help in calculating the value of the benefits she isreceiving from Newco Ltd. She has provided the following information regarding the benefits received during thetax year 2004–05:

(i) A loan to help her purchase a new home. Newco Ltd advanced £25,000 on 6 June 2004 at an interestrate of 2% per year. Sami repaid £10,000 on 6 December 2004. The remaining £15,000 was stilloutstanding on 5 April 2005.

(ii) During the year Newco Ltd paid £3,500 into Sami’s personal pension plan.

(iii) Assistance with relocation costs from the Newco Ltd office in Manchester to the Newco Ltd office inWinchester (a distance of 210 miles), totalling £9,500.

(iv) Private medical insurance cover, which had an annual cost to the company of £560. If Sami had arrangedthis cover herself it would have cost her £750.

(v) Workplace parking costing £400.

Sami earns a salary of £28,000 per year.

Required:

Calculate the total value of Sami’s benefits to be assessed to income tax for the tax year 2004-05. Clearlyidentify any benefits which are exempt from tax and, where applicable, include any alternative calculationsin full as part of your workings. (9 marks)

(c) Jenny Smith, another employee of Newco Ltd, who returned to the UK at the end of April 2004, having spentthe previous six months on holiday overseas, has asked you to calculate her income tax payable for the tax year2004–05. She has provided the following information:

(i) She started work with Newco Ltd on 1 May 2004 with an annual salary of £32,700. She received a salaryincrease of 4% from 1 January 2005.

(ii) A Christmas bonus of £2,000 was received in December 2004 and an end of year bonus of £1,500 inrespect of the company’s year 1 April 2004 to 31 March 2005 was received in May 2005.

(iii) A taxable benefit of £2,400 has been calculated for the private use of a car provided to her by the company

(iv) UK dividends of £1,800 (cash amount) were received in January 2005.

(v) Net bank interest of £480 was received in December 2004.

(vi) Premium bond prizes of £250 and £50 were received in May 2004 and November 2004 respectively.

6



(vii) An amount of £234 was paid to a registered UK charity under the gift aid scheme in November 2004

(viii)Newco Ltd deducted income tax under PAYE totalling £5,820 from Jenny’s earnings.

(ix) A UK property was rented out fully furnished at a monthly rent of £400 from 1 July 2004. The full amountof rent due has been received during 2004-05. Expenses consisted of:

Water rates (for the period 1 April 2004 to 31 March 2005) £240Repairs to property in January 2005 £640Insurance (for the period 1 April 2004 to 31 March 2005) £360Agent’s fees £510Cost of new kitchen units £1,800

The property was not available for letting prior to 1 July 2004.

Jenny intends to claim any allowances available.

Required:

Calculate the income tax payable by Jenny for the tax year 2004–05. (18 marks)

(35 marks)

7 [P.T.O.



2 (a) Red Ltd is a UK resident company with no associates. Red Ltd has always made up accounts to 31 October.

During the year to 31 October 2004 the company had the following transactions in capital items:

Purchases:4 November 2003 Plant costing £8,0002 May 2004 Plant costing £18,0008 June 2004 Car (A) costing £20,00012 July 2004 Car (B) in part exchange (see details below)

Disposals:3 March 2004 Plant for £8,000 (original cost £7,000)12 July 2004 Car (C) in part exchange (see details below)14 August 2004 Car (D) for £3,000 (original cost £14,000)

Car (A) purchased in June 2004 will be used 40% for business use and 60% for private use by the FinanceDirector of the company.

Car (C), which had cost £9,000 in September 2002, was traded in against the purchase of car (B). The tradein value was £4,000 and the new car (B) was worth £11,000. The company paid the additional amount incash. Car (B) is used 100% for business purposes.

None of the cars are low emission vehicles.

The tax written down value of the general pool of plant and machinery for capital allowance purposes as at 1 November 2003 was £46,000 and the tax written down value of car (D), an expensive car, at the same datewas £8,000.

The company is classed as small for capital allowance purposes.

Required:

Calculate the maximum capital allowances that Red Ltd can claim for the year ended 31 October 2004.(10 marks)

(b) Blue Ltd is a UK resident company with no associates. The company has recently changed its accounting year-end to September. The company has had the following results for the four accounting periods ending 30 September 2004:

Year to 9 months to Year to Year to31 December 2001 30 September 2002 30 September 2003 30 September 2004

£ £ £ £Schedule D Case I profit 70,000 80,000 – 40,000Schedule D Case I loss – – (180,000) –Schedule A 12,000 9,000 112,000 12,000Chargeable gain – 10,000 – –Gift aid payment (2,000) (2,000) (2,000) (2,000)

Required:

(i) Calculate the profit chargeable to corporation tax (PCTCT) for each of the above periods on theassumption that Blue Ltd claims relief for the trading loss at the earliest opportunity. (8 marks)

(ii) State the amounts of any unrelieved losses and/or charges carried forward as at 30 September 2004.(2 marks)

8



(c) Green Ltd is a UK resident company with one 100% owned associate. The company had the following resultsfor the year ended 31 March 2005:

Income:£

Adjusted Schedule D Case I profit 980,000Debenture interest received (note 1) 7,500Chargeable gain 85,000UK dividends received (not from the associate) 27,000

Expenditure:Bank interest paid (note 2) 3,000Gift aid payment 4,000

Notes:1. The debenture interest received was in respect of £100,000 debentures purchased on 16 May 2002 at an

interest rate of 10%. The amount of the debenture interest outstanding at 31 March 2005 will be receivedin April 2005.

2. The bank interest paid is the full amount due on a loan used to purchase investments.

Required:

Calculate the corporation tax payable by Green Ltd for the year ended 31 March 2005. (6 marks)

(26 marks)

9 [P.T.O.



3 (a) Nigel Hawksworth made the following disposals of capital items in the tax year 2004–05:

14 May 2004: An antique vase was sold for £5,400. The vase had originally cost £3,600 in September 2002.

16 October 2004: A house, which had never been used as Nigel’s main residence, was sold for £240,000. Thehouse had originally been purchased in July 1990 for £110,000. The indexed cost of the house on 6 April 1998was £140,000.

9 January 2005: 3,500 shares in ABC plc were sold for £9,800. Nigel had purchased ABC plc shares at thefollowing times:

May 2002 1,000 shares costing £1,600August 2003 2,000 shares costing £3,600May 2004 1 for 2 rights issue taken up, costing £2·20 per share

None of the above assets were classed as business assets.

Required:

Calculate Nigel’s total chargeable gains (before the annual exemption) for the tax year 2004–05.(10 marks)

(b) Nigel’s brother John also made chargeable gains in the tax year 2004–05. His gains (before taper relief) were:

£12,000 in respect of a non-business asset owned for five complete years£14,000 in respect of a business asset owned for three complete years£3,000 in respect of a non-business asset owned for four complete years

John also made an allowable capital loss of £5,000 on the sale of a fourth asset in the tax year 2004–05.

John’s taxable income (after his personal allowance) for income tax purposes was £28,500 for the tax year2004–05.

Required:

Calculate the capital gains tax payable by John for the tax year 2004–05. (7 marks)

(c) Nigel’s sister, Pamela, has her own pottery business. On 1 September 2004 she sold a shop for £80,000, whichhad cost her £42,000 on 1 May 1999.

In June 2004 she had purchased a new shop for £72,000.

Both shops were used 100% for business purposes.

Required:

On the assumption that Pamela always claims any reliefs available:

(i) calculate her chargeable gain (before the annual exemption) on the disposal of the old shop; and(4 marks)

(ii) state the base cost of the replacement shop for capital gains tax purposes. (1 mark)

(22 marks)

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This is a blank page.Question 4 begins on page 12.

11 [P.T.O.



4 (a) Imogen Tombay runs a small sole trader business and is registered for VAT. During the three month period ended31 October 2004 Imogen carried out the following transactions:

Purchases:£

Stock (exclusive of VAT) 42,000Sales (exclusive of VAT where applicable):Standard rated 98,000Zero-rated 24,000

Expenses (inclusive of VAT where applicable):Wages 18,000Electricity 11,100Accounting fees 1,1500Computer expenses 1,1140

All sales are made with an offer of a 5% discount if settled within 21 days. Only 80% of sales are actually settledwithin this period.

Imogen wrote off two trade bad debts during the period. One for £300 was due to be paid on 2 January 2004and the other for £400 was due to be paid on 18 July 2004. Both figures are stated exclusive of VAT.

Imogen does not use either the flat rate scheme or the cash accounting scheme.

Required:

Calculate the VAT payable or reclaimable by Imogen for the three-month period ended 31 October 2004,stating by when the VAT return must be submitted. (8 marks)

(b) Imogen’s sister Freda is also a sole trader and makes her accounts up to 31 March annually. Her profit and lossaccount for the year ended 31 March 2005 was as follows:

£ £Gross profit £260,000Bank interest received £117,500Expenses:Wages (Note 1) 32,000Electricity (Note 2) 12,400Rent 11,600Computer expenses (Note 3) 11,860Insurance (Note 2) 11,540Drawings by Freda 34,500Accounting fees 11,500 £1(72,400)

––––––– –––––––––Net profit £195,100

–––––––––

Notes:

1. The wages figure includes £8,500 for Freda’s son who worked only three hours a week for the whole of theyear ended 31 March 2005. The normal rate for these duties is £5 per hour.

2. The electricity and insurance both include private use of 20%.

3. Freda uses the computer at home for private work and estimates this to be 25% of the total usage.

4. Freda’s capital allowances claim for the year is £2,500.

Required:

Calculate Freda’s adjusted Schedule D Case I profit for the year ended 31 March 2005. (6 marks)

12



(c) Imogen’s brother Sebastian has previously run a sole trader business but due to falling profits decided to ceasetrading on 31 March 2005. His adjusted profits for his final three accounting periods were as follows:

Year to 31 October 2003 £12,000Year to 31 October 2004 £8,0005 months to 31 March 2005 £3,000

Unused overlap profits from the opening years of his business amounted to £6,000.

Required:

Calculate Sebastian’s Schedule D Case I assessments for all of the tax years affected by the above results.(3 marks)

(17 marks)


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Answers





17

ACCA Certified Accounting Technician Examination – Paper T9 (GBR) December 2005 Answers andPreparing Taxation Computation (UK stream) Marking Scheme

Marks1 (a)

Pay and PayneWinchesterTel: 01962 888889

1 March 2005

Reference: XXXX

Newco LtdWinchester

Dear Sir

PAYE PROCEDURES

Thank you for your recent letter asking for assistance with the PAYE end of year procedure rules.

The Revenue requires the following forms to be completed and submitted by the dates indicated.

A form P14 must be completed for each employee showing the amount of pay, tax and national insurance for the year. This is to be completed in triplicate with two copies going to the Revenue and one being given to the employee. The employee copy is called a form P60. These forms must be submitted to the Revenue by 19 May and to the employee by 31 May after the year end. 3

A form P35 must be submitted at the same time as the forms P14. A form P35 is simply a list of all of the forms P14. 1

Finally if benefits have been given to any employee then either a form P9D for those earning less than £8,500 or a form P11D for those earning £8,500 or more in a year must be completed for each employee showing the value of those benefits given. These forms are completed in duplicate with one copy going to the Revenue and the other to the employee – both by 6 July following the year end. 2

If I can be of further assistance please do not hesitate to contact me on the above number.

Yours faithfullyH KnowlesTax Technician

Presentation 2–––8

–––



18

Marks(b) Sami Jenkins – Benefits 2004–05

Loan £Average method:

£25,000 + £15,000 = £20,000––––––––––––––––––

2£20,000 x (5% – 2%) x 10/12 = £500 1·5

–––––Strict statutory method

£25,000 x (5% – 2%) x 6/12 = 375£15,000 x (5% – 2%) x 4/12 = 150 £525 2

–––– –––––The Revenue will take the higher strict method 525 0·5

Pension contributionsExempt – tax free benefit 1

Relocation costs£

Amount received 9,500 0·5Exempt limit (8,000) 1,500 1

––––––

Medical insuranceCost to the employer 560 1

Workplace parkingExempt – tax free benefit 1

–––––––Total benefits £2,585 0·5

––––––– –––9

–––

(c) Jenny Smith – Income tax payable 2004–05Non-savings Savings

Total income income Dividend£ £ £ £

Salary£32,700 x 8/12 21,800£32,700 x 1·04 x 3/12 18,502 30,302 2

––––––Bonus 12,000 1Benefits 12,400 0·5

––––––Employment income 34,702 34,702Dividend£1,800 x 100/90 12,000 2,000 1Bank interest£480 x 100/80 11,600 600 1Premium bond prizes(exempt – tax free) 1Schedule A rent(see working) 11,658 11,658 6

–––––– –––––– –––– –––––Statutory total income 38,960 36,360 600 2,000Personal allowance 1(4,745) 1(4,745) 0·5

–––––– –––––– –––– –––––Taxable income £34,215 £31,615 £600 £2,000

–––––– –––––– –––– –––––



19

MarksExtension of basic rate band: £31,400 + (£234 x 100/78) = £31,700 1Tax payable £ £

1st 2,020 x 10% 202 0·5Next 29,595 x 22% 6,511 0·5

––––––– x 10%31,615 x 10%––––––– x 10%

Savings 85 x 20% 17 0·5Savings 515 x 40% 206 0·5Dividend 2,000 x 32·5% 650 0·5

–––––––Tax liability 7,586Tax paid at sourceDividend credit – 10% (200) 0·5Interest credit — 20% (120) 0·5PAYE (5,820) 0·5

–––––––Tax payable £1,446

––––––– –––18–––

Working – Schedule A rentRent received £400 x 9 3,600 1Water rates £240 x 9/12 (180) 1Repairs (640) 0·5Insurance £360 x 9/12 (270) 1Agents fees (510) 0·5New units (capital) – 0·5Wear and tear allowance(£3,600 – £180) x 10% (342) 1·5

––––––– –––£1,658 6––––––– –––

Total 35–––



20

Marks2 (a) Red Ltd – Capital allowances for the year ended 31 March 2005

FYA General Expensive Expensive Capitalpool car (1) car (2) allowances

£ £ £ £ £Balances brought forward 46,000 8,000PurchasesPlant – November 2003 8,000 0·5Plant – May 2004 18,000 0·5Car – June 2004 20,000 0·5Car – July 2004 11,000 1DisposalsPlant – March 2004 (7,000) 1Car – July 2004 (4,000) 1Car – August 2004 (3,000) 0·5

––––––– ––––––– –––––––46,000 5,000 20,000

Balancing allowance (5,000) 5,000 1WDA – 25% (11,500) 11,500 1WDA – restricted (3,000) 3,000 1FYA£8,000 x 40% (3,200) 3,200 1£18,000 x 50% (9,000) 9,000 1Transfer to pool (13,800) 13,800

–––––––– –––––––– ––––––– -––––––– –––––––– –––Balances carried forward £48,300 Nil £17,000 10

–––––––– ––––––– ––––––––Total allowances £31,700

––––––––

Tutorial note: Private use is ignored when calculating capital allowances for a company.

(b) Blue Ltd – Loss relief(i) Year to 9 months to Year to Year to

31 December 30 September 30 September 30 September2001 2002 2003 2004

£ £ £ £Schedule D Case I 70,000 80,000 40,000 1Loss carried forward (s.393(1)) (40,000) 1Schedule A 12,000 9,000 12,000 12,000 1Chargeable gain 10,000 0·5

––––––– ––––––– ––––––– –––––––82,000 99,000 12,000 12,000

Current year loss (s393A(1)) (12,000) 1Loss carried back (s.393A(1)) (20,500) (99,000) 2·5Gift aid (2,000) (2,000) 1

–––––––– ––––––– ––––––– –––––––– –––Profits chargeable to corporation tax £59,500 Nil Nil £10,000 8

–––––––– ––––––– ––––––– ––––––––

(ii) Unrelieved charges £2,000 £2,000 1

Loss memo £180,000

September 2003 (12,000)September 2002 (99,000)December 2001 (20,500) (£82,000 x 3/12)September 2004 (40,000)

–––––––Carried forward £8,500 1

––––––– –––2



21

Marks(c) Green Ltd – Corporation tax year ended 31 March 2005

£ £Schedule D Case I 980,000 0·5Schedule D Case IIISchedule D Debenture interest 10,000 1Schedule D Bank interest (3,000) 7,000 0·5

––––––Chargeable gain 85,000 0·5

––––––––––1,072,000

Charge on incomeGift aid payment (4,000) 0·5

––––––––––Profits chargeable to corporation tax 1,068,000Franked investment income (FII)£27,000 x 100/90 30,000 1

––––––––––Profits £1,098,000

––––––––––Upper limit: £1,500,000/2 (associated companies) = £750,000 1Tax payable:Schedule D £1,068,000 x 30% £320,400 1

–––––––––– –––6

–––Total 26

3 (a) Nigel Hawksworth – Chargeable gains for 2004–05Vase

Exempt – proceeds and cost < £6,000 1

House £Proceeds 240,000Indexed cost (140,000)

–––––––––£100,000 1–––––––––

Taper relief – 6 years + 1 bonus = 75%£100,000 x 75% = £75,000 1

–––––––––

SharesDisposals are deemed to occur on a LIFO basis, thus:

Shares Cost£

August 2003 2,000 3,6001 for 2 rights issue 1,000 2,200 1

–––––– ––––––3,000 5,800

Disposal (3,000) (5,800) 1–––––– ––––––

nil nil–––––– ––––––

May 2002 1,000 1,6001 for 2 rights issue 500 1,100 1

–––––– ––––––1,500 2,700

Disposal (500) (900) 1–––––– ––––––1,000 £1,800

–––––– ––––––



22

MarksGains

£Proceeds (3,000/3,500 x £9,800) 8,400Cost (5,800)

–––––––£2,600 1–––––––

Proceeds (500/3,500 x £9,800) 1,400Cost (900)

–––––––£500 1

–––––––No taper relief for either disposal 0·5Total gains £78,100 0·5

–––––––– –––10

(b) John Hawksworth – Capital gains tax for 2004–05Gain 1 Gain 2 Gain 3 Total

Taper % 85% 25% 90%£ £ £ £

Gain 12,000 14,000 3,000Loss* (2,000) (3,000) 2

––––––– ––––––– –––––––10,000 14,000 Nil––––––– ––––––– –––––––

Tapered gain 8,500 3,500 12,000 2Annual exemption (8,200) 1

–––––––Chargeable gains £3,800

–––––––*Use against gains with the least taper relief first

Tax payable:£

(£31,400 – £28,500) = £2,900 x 20% 580 1(£31,400 – £1,28,500) = £900 x 40% 360 1

––––– –––£940 7–––––

(c) Pamela Hawksworth – Chargeable gain for 2004–05£

(i) Proceeds 80,000Cost (42,000)

–––––––38,000 1

Chargeable now(amount not reinvested) (8,000) 1

–––––––Rolled over £30,000 1

–––––––Taper relief – 5 years = 25%£8,000 x 25% = £2,000 1

–––––––

(ii) Cost of new factory 72,000Rolled over (30,000)

–––––––Base cost £42,000 1

––––––– –––5

–––Total 22



Marks4 (a) Imogen Tombay – VAT for the quarter ended 31 October 2004

£ £Output tax:Sales £98,000 x 95% x 17·5% 16,293 1·5Input tax:Purchases £42,000 x 17·5% 7,350 1Electricity £1,100 x 7/47 164 1Accounting fees £500 x 7/47 74 1Computer expenses £140 x 7/47 21 1Bad debt £300 x 17·5% 53 (7,662) 1

––––– –––––––VAT payable £8,631 0·5

–––––––Due date of return: 30 November 2004 1

–––8

Notes:1. Full discount is always taken into account2. The bad debt of £400 is not 6 months old

(b) Freda Tombay – Adjusted Schedule D Case I profit£ £

Net profit per accounts 195,100 0·5Deduct interest received (7,500) 0·5Add back:Wages for son (note 1) 7,720 1Electricity (£2,400 x 20%) 480 1Insurance (£540 x 20%) 108 1Computer expenses (£860 x 25%) 215 1Drawings 34,500 43,023 0·5

––––––– –––––––––230,623

Less capital allowances (2,500) 0·5––––––––– –––£228,123 6–––––––––

Note 1:Wages allowed are £15 x 52 weeks = £780Therefore disallowed amount to be added back: £8,500 – £780 = £7,720

(c) Sebastian Tombay – Final years of assessments2003–04 Current year basis – Year ended 31 October 2003 £12,000 1

––––––––––––––––2004–05 Balance to date2004–05 (£8,000 + £3,000) 11,000 1Overlap profits (6,000) £5,000 1

–––––––– –––––––––––––––– –––3

–––Total 17

23





ADVANCED LEVEL


QUESTION PAPER







Pape

r T9

(GB

R)




2




Income Tax



Personal allowance


Company car benefit


Car fuel benefit









5%

3 [P.T.O.



Capital allowances



– low emission motor cars (CO2 emissions of less– than 120 grams per kilometre 100

For small businesses only: the rate of plant and machinery first-year allowance was increasedto 50% for the period from 1 April 2004 to 31 March 2005 (6 April 2004 and 5 April 2005for unincorporated businesses).


Corporation tax

Financial year 2004 2005Starting rate 0% 0%Small companies rate 19% 19%Full rate 30% 30%Starting rate lower limit £10,000 £10,000Starting rate upper limit £50,000 £50,000Small companies rate lower limit £300,000 £300,000Small companies rate upper limit £1,500,000 £1,500,000Marginal relief fraction:



Marginal relief


Value added tax



Individuals £8,500

4





% %1 50 1002 25 1003 25 954 25 905 25 856 25 807 25 758 25 709 25 6510 25 60





Class 1A 12·8

Class 2 £2·10 per week





5 [P.T.O.




1 (a) Fred was self employed until 31 August 2005 when he ceased to trade. On 1 September 2005 he commencedemployment as a business manager with Hi-Low Ltd, a large UK company.

Fred’s tax adjusted profits, after capital allowances, for his final two accounting periods were as follows:

Year ended 31 May 2005: £25,0003 months to 31 August 2005: £4,000

Unused overlap profits from his opening years of business were £2,000.

From 1 September 2005 Fred received an annual salary of £36,000 gross from Hi-Low Ltd and during the taxyear 2005—06 also received the following benefits:

– Private medical insurance, starting from 6 September 2005. The annual premium cost Hi-Low Ltd £720,but the same insurance cover would have cost Fred £900 if he had arranged it privately.

– Luncheon vouchers at £1·55 per working day. Fred worked 150 days during the period 1 September 2005to 5 April 2006.

– The use of computer equipment at home for both business and private use. The equipment had a marketvalue of £4,800 when it was first provided on 1 September 2005.

In addition to the above benefits Fred uses his own car for all business journeys and claims a mileage allowancefrom Hi-Low Ltd. During the period 1 September 2005 to 5 April 2006 Fred drove 2,400 business miles andreceived 45p per mile from Hi-Low Ltd.

During the tax year 2005–06 Hi-Low Ltd deducted income tax amounting to £3,300 from Fred’s salary.

Starting on 10 November 2005 and on the 10th of each month thereafter Fred paid £30 to a UK registeredcharity via Hi-Low Ltd’s company arranged payroll deduction scheme. He also paid his annual subscription of£150 to the Institute of Managers, an HMRC approved professional body, in January 2006.

On 14 February 2006 Fred sent a cheque for £1,872 to his pension advisor. This sum was invested into hisprivate pension plan by his advisor on 22 February 2006.

Fred’s only other income for the tax year 2005–06 was:Bank deposit account interest £600Building society savings account interest £320Building society Individual SavingsAccount (ISA) interest £400Debenture interest from UK companies £320Dividends from UK companies £270

All the amounts shown are the actual cash amounts received or the actual amounts credited to the accounts.

Required:

Calculate the income tax payable by Fred for the tax year 2005–06. (22 marks)

(b) Peter works for Sports (UK) Ltd. During the tax year 2005–06 he was paid a salary of £2,210 per month. Inaddition he received non-cash benefits of £8,000 for the tax year 2005–06 and was paid a cash bonus of£7,500 in February 2006.

Required:

Calculate the amount of class 1 and class 1A national insurance contributions (NIC) payable by Peter andSports (UK) Ltd for the tax year 2005–06. (8 marks)

(c) Susan also worked for Sports (UK) Ltd but has recently been made redundant and is about to start employmentwith another company, Fitness (UK) Ltd.

Sports (UK) Ltd is about to issue Susan with her form P45 but is not sure about its distribution.

Required:

State how many parts of the form P45 are required and how all parts will be distributed and to whom.(5 marks)

(35 marks)

6



2 (a) Yellow Ltd is a UK registered company, which satisfies the conditions for small company status for capitalallowance purposes.

On 1 May 2005, Yellow Ltd’s tax written down values brought forward were as follows:

The general pool of plant and machinery: £86,000An expensive car (purchased in November 2000) £4,500A short life asset (SLA) (purchased in August 2004 for £8,000) £4,000

During its eight month accounting period ended 31 December 2005 Yellow Ltd had the following capitaltransactions:

Purchases2 May 2005 Machine A, which is to be treated as a short life asset (SLA), for £18,00014 June 2005 A car for £26,0001 September 2005 Machine B for £20,000

Disposals:19 June 2005 Machine C sold for £3,000 (its original cost was £6,000)16 July 2005 The short life asset (SLA) purchased in August 2004, sold for £2,4001 December 2005 The expensive car purchased in November 2000 sold for £6,000

Neither of the cars was a low CO2 emission vehicle

Required:

Calculate the maximum capital allowances claimable by Yellow Ltd for its eight month accounting periodended 31 December 2005. (10 marks)

(b) Scarlet Ltd is a large UK resident company with one associated company. The company has always made up itsaccounts to 31 December each year and has always paid tax at the full rate. Due to a change in accountingprocedures the company decided to change its accounting date to 31 March.

The following are Scarlet Ltd’s results for the fifteen month accounting period ended 31 March 2006:

Adjusted trading profit (before capital allowances) £1,400,500Property business profit £105,000Capital gains– 14 August 2005 disposal £28,000– 2 January 2006 disposal £4,000capital loss – 12 February 2006 disposal (£5,000)Gift aid payment to a UK registered charity paid on 31 March 2006 (£8,000)

The property business profit was earned evenly over the entire period and is based on the actual amount of rentsdue.

The tax written down value of the company’s pool of general plant and machinery brought forward on 1 January2005 was £720,000. There were no capital transactions affecting the capital allowances pool during the fifteenmonth period ended 31 March 2006.

Required:

Calculate the corporation tax payable by Scarlet Ltd for each of its two chargeable accounting periods ended31 March 2006. (10 marks)

(c) Purple Ltd is a UK company. 80% of its issued share capital is owned by John Tracey and the other 20% isowned by Blue Ltd. Neither John nor Purple Ltd own shares in any other company.

Purple Ltd had profits chargeable to corporation tax (PCTCT) of £40,000 for its year ended 31 March 2006 andpaid a dividend of £24,000 to John and £6,000 to Blue Ltd on 31 March 2006.

Required:

Calculate the corporation tax payable by Purple Ltd for its year ended 31 March 2006. (5 marks)

(25 marks)

7 [P.T.O.



3 (a) Paul is a UK resident. During the tax year 2005–06 he made the following capital disposals:

12 May 2005 – 10 acres of farmland, sold for £90,000. Selling expenses amounted to £1,000. The farmlandwas part of a 25-acre field that Paul had purchased in November 1999 for £54,000. The market value of theremaining 15 acres on 12 May 2005 was £180,000. The field had never been used as a business asset.

15 October 2005 – A building used in his business, sold for £140,000. The building had been purchased inSeptember 1996 for £60,000 and had an indexed cost of £63,420 on 6 April 1998.

14 November 2005 – A vintage car, sold for £36,000. The car had been purchased in October 2001 for£21,000 and had never been used as a business asset.

2 February 2006 – A painting, sold for £5,000. The painting had been purchased in May 2004 for £8,200and had never been used as a business asset.

Paul’s taxable income (after deduction of his personal allowance) for income tax purposes for the tax year2005–06 was £30,800.

Required:

(i) Calculate the capital gains tax payable by Paul for the tax year 2005–06. (13 marks)

(ii) State the due date of payment of the tax calculated in (i). (1 mark)

(b) Paul’s wife, Petra recently decided to retire after running a successful business for fifteen years. She sold abusiness asset to their son Peter in February 2006 for an agreed price of £120,000. The asset is actually worth£245,000.

Petra had purchased the asset for £80,000 in 1990 and it had an indexed cost of £100,640 on 6 April 1998.

Petra and Peter have made a joint election for gift relief.

Required:

(i) Calculate Petra’s chargeable gain (after taper relief) on the disposal of the asset. (5 marks)

(ii) State Peter’s base cost of the asset for future capital gains tax purposes. (1 mark)

(20 marks)

8



4 (a) Carol, Wendy and Bob have been in partnership for several years. Carol receives an annual salary of £10,000and each partner receives 4% interest on the capital they have contributed. The balance of profits is shared inthe ratio of 3:1:1 to Carol, Wendy and Bob respectively.

The capital amounts contributed are:Carol £40,000Wendy £20,000Bob £10,000

For the accounting year ended 31 January 2006 the partnership tax adjusted trading profit was £80,000.

Required:

Calculate each partner’s taxable income from the partnership for the accounting year ended 31 January2006. (4 marks)

(b) Morgan commenced in business as a sole trader on 1 February 2004. His first set of accounts were made up to30 June 2004 and annually thereafter on 30 June.

Morgan’s tax adjusted profits, after capital allowances, for his first three accounting periods were:

5 months to 30 June 2004 £8,000Year to 30 June 2005 £18,000Year to 30 June 2006 £20,000

Required:

(i) Calculate the trading income assessments for each of the first four tax years applicable to the business.(6 marks)

(ii) State the amount of overlap profits arising. (2 marks)

(c) Charles has recently registered for VAT. A friend has told him that he may benefit from using the annualaccounting scheme. He has written to you and asked for advice on this point.

Required:

Prepare draft notes, for a meeting with Charles, outlining both the rules and potential benefits of using theannual accounting scheme. (8 marks)

(20 marks)


9



Answers



ACCA Certified Accounting Technician Examination – Paper T9(GBR) June 2006 AnswersPreparing Taxation Computations (UK Stream) and Marking Scheme

Marks1 (a)

Fred – Income tax for the tax year 2005–06Non

Savings Savings Dividend Total£ £ £ £ £

Salary – 7/12 x £36,000 21,000 1Benefits (w1) 690Use of own car2,400 x (45p – 40p) 120 1

–––––––21,810

Payroll giving scheme(£30 x 5) (150) 1Professional fee (150) 1

–––––––Employment income 21,510 21,510Trading profit (w2) 27,000 27,000Bank interest(£600 x 100/80) 750 750 1Building society interest(£320 x 100/80) 400 400 1Debenture interest(£320 x 100/80) 400 400 1ISA interest (exempt) – 1Dividend(£270 x 100/90) 300 300 1

–––––––– –––––– ––––– ––––––––Statutory total income (STI) 48,510 1,550 300 50,360Personal allowance (4,895) (4,895) 0·5

–––––––– –––––– ––––– ––––––––Taxable income £43,615 £1,550 £300 £45,465

–––––––– –––––– ––––– ––––––––

Extension of basic rate band:(£32,400 + £1,872 x 100/78) = £34,800 1

Tax payable £ £1st 2,090 x 10% 209 0·5Next 32,710 x 22% 7,196 0·5

–––––––34,800

Next 8,815 x 40% 3,526 0·5–––––––43,615

Savings 1,550 x 40% 620 0·5Dividend 300 x 32·5% 97 0·5

–––––––11,648

Tax deducted at source:Bank interest (20%) 150 0·5Building society interest(20%) 80 0·5Debenture interest (20%) 80 0·5Dividend (10%) 30 0·5PAYE 3,300 (3,640) 0·5

–––––– –––––––£8,008–––––––

13



MarksWorkingsw1Medical cover £

Cost to company – £720 x 7/12 420 1

Luncheon vouchers15p a day tax free£1·55 – 15p x 150 days 210 1

Computer£4,800 x 20% x 7/12 560 11st £500 (500) 60 1

–––––– ––––––Total benefits £690

––––––w2Trading profit

2005–06 (Final year)£25,000 + £4,000 29,000 1·5Overlap profit (2,000) £27,000 1

––––––– –––––––– –––22–––

(b) Peter – National insurance contributions – tax year 2005–06

Calculations must be based on Peter’s earning period i.e. monthly.

Monthly limits: £4,895/12 = £408£32,760/12 = £2,730

Peter received £2,210 for 11 months and £9,710 per one month

Class 1 primary (Peter)£

(£2,210 – £408) x 11% x 11 months 2,180 1·5(£2,730 – £408) x 11% x 1 month 255 1·5(£9,710 – £2,730) x 1% x 1 month 70 1·5

–––––––£2,505–––––––

Class 1 secondary (Sports (UK) Ltd)(£2,210 – £408) x 12·8% x 11 months 2,537 1(£9,710 – £408) x 12·8 x 1 month 1,191 1

–––––––£3,728–––––––

Class 1A (Sports (UK) Ltd)£8,000 x 12·8% £1,024 1·5

––––––– –––8

–––

(c) Susan – Form P45 distributionFour copies required 1

Part 1 is sent to HMRC by the company (Sports (UK) Ltd) 1Three parts are given to the employee (Susan) 1One part is retained by Susan and two parts are given to her new employer (Fitness (UK) Ltd) 1The new employer retains one part for their records and sends the other part to HMRC 1

–––5

–––35–––

14



Marks2 (a) Yellow Ltd – Capital allowances for the period ended 31 December 2005

FYA General Expensive Expensive SLA SLApool car (1) car (2) (1) (2)

£ £ £ £ £ £Balances b/forward 86,000 4,500 4,000Purchases:2 May 18,000 0·514 June 26,000 0·51 September 20,000 0·5Disposals:19 June (3,000) 0·516 July (2,400) 0·51 December (6,000) 0·5

––––––– ––––––– ––––––– ––––––– ––––––– –––––––83,000 (1,500) 26,000 1,600 18,000

Balancing allowance (1,600) 1Balancing charge 1,500 1WDA – 25% x 8/12 (13,833) 1WDA – £3,000 x 8/12 (2,000) 1FYA – 40% (8,000) (7,200) 2

–––––––Transfer to pool (12,000) 12,000 0·5

––––––– ––––––– ––––––– ––––––– ––––––– –––––––Balances c/forward £81,167 nil £24,000 nil £10,800

––––––– ––––––– ––––––– ––––––– –––––––

Total allowances:WDA 13,833WDA – restricted 2,000Balancing allowance 1,600FYA 15,200Balancing charge (1,500) 0·5

–––––––– –––£31,133 10–––––––– –––

(b) Scarlet Ltd – Corporation tax computation for the periods ended 31 Mach 200612 months to 3 months to31 December 31 March

2005 2006 1£ £

Trading profit£1,400,500 x 12/15 1,120,400 0·5£1,400,500 x 3/15 280,100 0·5Capital allowances (w1) (180,000) (33,750)

–––––––––– –––––––––Adjusted trading profit 940,400 246,350Property business profit(12:3) 84,000 21,000 1Capital gain 28,000 4,000 1Capital loss (5,000) 0·5

–––––––Carried forward (1,000) 0·5

––––––––– ––––––– ––––––––1,052,400 267,350

Gift aid (8,000) 0·5–––––––––– –––––––––

Profits chargeable to corporationtax (PCTCT) £1,052,400 £259,350

–––––––––– –––––––––Tax rate thresholds:£1,500,000/2 (x 3/12) £750,000 £187,500£300,000/2 (x 3/12) £150,000 £37,500 2Tax at 30% £315,720 £77,805 1

––––––––– ––––––––

15



Marksw1Capital allowances

Generalpool

12 months to 31 December 2005 £Balance b/forward 720,000WDA – 25% (180,000) 0·5

––––––––540,000

3 months to 31 March 2006WDA – 25% x 3/12 (33,750) 1

–––––––––£506,250––––––––– –––

10–––

(c) Purple Ltd – Corporation tax computation for the year ended 31 March 2006

Small company with non-corporate dividends

Underlying rate of tax:£

£40,000 x 19% 7,600Marginal relief:(£50,000 – £40,000) x 19/400 (475)

–––––––£7,125 2–––––––

£7,125 x 100 17·81% 1––––––––

£40,000

Tax payable:£24,000 x 19% 4,560£16,000 x 17·81% 2,850–––––––– –––––––£40,000 £7,410 2–––––––– ––––––– –––

5–––25–––

3 (a) (i) Paul – Capital gains tax for the tax year 2005–06

Farm land £Proceeds 90,000Expense of selling (1,000)

–––––––89,000 1

Cost:

£54,000 x90,000

(18,000) 2–––––––––––––––––90,000 + 180,000 ––––––––

£71,000––––––––

Taper relief 5 years – 85% 0·5

Building:Proceeds 140,000 0·5Indexed cost at 6 April 1998 (63,420) 1

––––––––£76,580––––––––

Taper relief 7 years (business asset) – 25% 0·5

Car:Exempt 1

Painting:Deemed proceeds 6,000 1Cost (8,200) 0·5

––––––––Loss £2,200

––––––––

16



MarksSummary:

£ £Gains 71,000 76,580Loss (2,200) 1

–––––––– ––––––––£68,800 £76,580–––––––– ––––––––

Taper 85% 25%Chargeable gains £58,490 £19,145 1Total £77,625Annual exemption (£8,500) 1

––––––––£69,125––––––––

Basic band unused: £32,400 – £30,800 = £1,600 1Capital gains tax payable:

£1£1,600 x 20% 320 0·5£67,525 x 40% 27,010 0·5

–––––––– –––£27,330 13–––––––– –––

(ii) Payable 31 January 2007 1

(b) (i) Petra – Capital gains tax for the tax year 2005–06

£Proceeds 245,000 1Indexed cost at 6 April 1998 (100,640) 1

–––––––––144,360

Chargeable now:£120,000 – £80,000 (40,000) 1

–––––––––£104,360 1–––––––––

Taper relief 7 years (business asset): 25%£40,000 x 25 £10,000 1

––––––––– –––5

–––

(ii) Base cost for PeterMarket value 245,000Gift relief (104,360)

–––––––––£140,640 1––––––––– –––

20–––

17



Marks4 (a) Carol, Wendy and Bob – Partnership taxable income

Year to 31 January 2006Carol Wendy Bob Total

£ £ £ £Salary 10,000 10,000 1Interest (4%) 1,600 800 400 2,800 1·5Balance (3:1:1) 40,320 13,440 13,440 67,200 1·5

–––––––– –––––––– –––––––– ––––––––£51,920 £14,240 £13,840 £80,000–––––––– –––––––– –––––––– –––––––– –––

4–––

(b) (i) Morgan – Opening year assessments£

2003–04 Actual basis 0·51 February 2004 – 5 April 2004 0·52/5 x £8,000 13,200 0·5

2004–05 1st 12 months of trading 0·51 February 2004 – 31 January 2005 0·5£8,000+ 7/12 x £18,000 18,500 1·5

2005–06 Current year basis – 30 June 2005 18,000 1

2006–07 Current year basis – 30 June 2006 20,000 1–––6

–––

(ii) Overlap profit£

1 February 2004 – 5 April 20042/5 x £8,000 13,200 1

1 July 2004 – 31 January 20057/12 x £18,000 10,500 1

––––––– –––£3,700 2––––––– –––

((cc)) Meeting notes – VAT annual accounting scheme– Tax exclusive turnover must not have exceeded £660,000 in the 12 months up to the date of application– Must have been registered for at least 12 months– The 12 month registration period does not apply if turnover is £150,000 or less and can join the

scheme as soon as registered– All previous returns must be up to date– Can not join the scheme if input tax exceeded output tax in the previous year– One return is required two months after the year end– Nine monthly payments are required, each equal to 10% of last years total VAT starting at the end of

the fourth month– Quarterly payments of 25% of the agreed provisional liability can be made if taxable turnover is

£150,000 or less– A balancing payment is due with the return– Must leave the scheme when taxable turnover exceeds £825,000– Only one VAT return per year so fewer chances to trigger a default surcharge– Cash flow can be managed better

One mark for each valid point – maximum of 8–––20–––

18





ADVANCED LEVEL


QUESTION PAPER







Pape

r T9

(GB

R)




2

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NG

TT

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9EN

G




Income Tax



Personal allowance


Company car benefit


Car fuel benefit









5%

3 [P.T.O.

6D–E

NG

TT

Pap

er T

9EN

G



Capital allowances



– low emission motor cars (CO2 emissions of less– than 120 grams per kilometre) 100



Corporation tax

Financial year 2004 2005Starting rate 0% 0%Small companies rate 19% 19%Full rate 30% 30%Starting rate lower limit £10,000 £10,000Starting rate upper limit £50,000 £50,000Small companies rate lower limit £300,000 £300,000Small companies rate upper limit £1,500,000 £1,500,000Marginal relief fraction:



Marginal relief


Value added tax



Individuals £8,500

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% %1 50 1002 25 1003 25 954 25 905 25 856 25 807 25 758 25 709 25 6510 25 60





Class 1A 12·8






5 [P.T.O.

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1 (a) Simon was born on 14 May 1954 and is a manager working for Able plc, a large UK resident company.

In 2005–06 Simon received a gross salary of £70,000 and on 16 February 2006 he received a bonus of£11,500 based on Able plc’s results for the year ended 31 December 2005.

In addition Simon received the following benefits in 2005–06:

– The use of a company car. The car was a 2000cc petrol driven Audi with a CO2 emission rate of 198 gramsper kilometre. The recommended list price was £28,000, but Able plc paid £24,000 because of a companydiscount scheme. Accessories to the value of £6,000 were added at the time that Simon took delivery of thevehicle, which was on 6 July 2005. The company paid for all of the running costs, including the fuel, whichamounted to £4,500 for the period to 5 April 2006. Simon used the car for both business and private use.Able plc did not provide Simon with the use of any other car before 6 July 2005.

– The use of a company owned house. The house was used permanently by Simon and his family from 6 October 2005. The house had been purchased by the company for £120,000 in May 1998 and had amarket value when Simon moved in of £250,000. The annual rateable value of the house was £8,000 andSimon paid £600 a month to the company for the use of the property. Simon paid for all of the householdexpenses. The house is not classed as job-related.

– The use of furniture. Whilst he occupied the above property the company provided Simon with the use offurniture, which had a market value of £10,000.

– Workplace parking. Simon was provided with a free car parking space in a public car park adjacent to hisplace of work. This cost the company £540 for the year ending 5 April 2006.

– General business expenses. Simon received an amount of £6 a day for 80 days of business trips in the UKand £9 a day for 60 days of business trips abroad. All of these trips required overnight stays away from homeand the amounts paid were used to cover the costs of incidental expenses such as newspapers and telephonecalls home.

Simon contributes 5% of his gross salary (excluding benefits and bonuses) into Able plc’s HMRC approvedoccupational pension scheme every year.

In addition, Able plc deducted the following amounts from Simon’s salary in 2005–06:

Income tax (PAYE) £23,150Class 1 national insurance contributions £3,517

Simon’s other income for 2005–06 was:

Bank interest £3,600Dividends from UK companies £900Dividends from shares held in an Individual Savings Account (ISA) £270

All amounts shown are the actual cash amounts received or credited to the account.

Simon paid £312 (net) to a UK registered charity and a £210 annual fee to an HMRC approved relevantprofessional body, required for his position in the company, in 2005–06.

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Required:

Calculate the income tax payable by Simon for the tax year 2005–06. (23 marks)

(b) Simon is considering purchasing a property and letting it out. He has heard that there are tax advantages if theproperty is treated as a furnished holiday letting and has written to you, his local tax advisor, for information.

Required:

Write a letter to Simon, using fictitious addresses, explaining the conditions, which must be met for aproperty to be treated as a furnished holiday let and the tax advantages this would have for Simon.

Marks will be awarded for the style and presentation of your answer. (11 marks)

(34 marks)

7 [P.T.O.

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2 (a) Broad Ltd is a UK resident company. It owns 80% of Thin Ltd, another UK company. During its accounting yearended 31 March 2006 Broad Ltd made a net trading profit of £1,240,000. Included in this figure (which hasnot yet been adjusted for tax purposes) were:

Income: £

UK dividends (note 1) 18,000Bank interest (note 2) 4,300Profit on the sale of a fixed asset (note 3) 84,000

Expenses:

Debenture interest (note 4) 5,000Gift aid payment to a UK registered charity 10,000Patent royalties (note 5) 14,600Legal fees (note 6) 10,000Payments for loss of office (note 7) 230,000

Notes:

1. None of the dividends were received from Thin Ltd.

2. The bank interest was the total amount due for the year in respect of amounts deposited.

3. The profit on the sale of a fixed asset resulted from the sale of an office building for £140,000 in May 2005.The building had been purchased in September 1996 for £56,000. The indexation factor for the periodSeptember 1996 to May 2005 is 0.241.

4. The debenture interest represents the amount payable on an issue of £100,000 5% loan stock in 2004,used to purchase a new item of plant, which is used in the trade.

5. The patent royalties paid are in respect of trading activities.

6. The legal fees comprise £8,000 for obtaining a 60-year lease on a new factory and £2,000 for staffemployment contracts.

7. The payments for loss of office are in respect of redundancy payments made to ensure the businesscontinues. The statutory redundancy payments made totalled £120,000 and the balance of £110,000 wasin respect of ex-gratia payments.

8. The balance on the general plant and machinery pool for capital allowances purposes on 1 April 2005 was£328,000. There were no purchases or disposals of plant and machinery during the year ended 31 March2006.

9. Broad Ltd had a capital loss of £18,000 brought forward at 1 April 2005.

10. Broad Ltd has always paid corporation tax at the full rate.

Required:

(i) Calculate the trading profit adjusted for tax purposes, for Broad Ltd, for the year ended 31 March 2006;(6 marks)

(ii) Calculate the profits chargeable to corporation tax (PCTCT) and the corporation tax payable by BroadLtd for the year ended 31 March 2006; (7 marks)

(iii) Assuming that the figure calculated in (ii) above was estimated correctly at the beginning of the year,state the due date(s) of payment and the amount due on each date, of Broad Ltd’s corporation tax forthe year ended 31 March 2006; (4 marks)

(iv) State the date by which Broad Ltd’s self-assessment corporation tax return must be filed; (1 mark)

(v) State how long Broad Ltd must keep its corporation tax records for, for the year ended 31 March 2006,assuming that in respect of that year HMRC do not make any enquiries. (1 mark)

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(b) Broad Ltd is registered for VAT.

Required:

State four types of expenditure on which the input VAT payable by a registered trader is treated as ‘blocked’and therefore irrecoverable. (4 marks)

(23 marks)

9 [P.T.O.

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3 (a) Patrick made the following disposals of assets in the tax year 2005-06:

19 May 2005: 6,000 shares in ABC plc were sold for proceeds of £23,400. Patrick’s record of purchases of ABC plc shares is as follows:

14 June 1997 4,000 shares for £8,40019 August 2000 1,000 shares for £1,60022 September 2004 2,000 shares for £4,90024 May 2005 1,000 shares for £4,400

The indexed cost at 6 April 1998 of the shares purchased in June 1997 was £8,670.

5 August 2005: An oil painting was sold for £5,800. The oil painting had been purchased in May 1999 for£6,500.

2 December 2005: A building was sold for £160,000. The building had been purchased in August 1994 for£82,000. An extension had been added in May 1999 at a cost of £19,000. The 6 April 1998 indexed cost ofthe building was £92,170.

None of the above assets were business assets.

Patrick’s taxable income for 2005-06 was £30,400.

Required:

(i) Calculate the capital gains tax payable by Patrick for 2005–06; (18 marks)

(ii) State the due date of payment of the capital gains tax calculated in (a)(i) above. (1 mark)

(b) Patricia sold her pottery business in October 2005 for £240,000. Her only assets had been her workshop, whichhad cost £40,000 in June 1999 and which had a value of £160,000 at the date of the sale, and goodwill,which had been created since the business started in 1999.

In December 2005 Patricia used £210,000 of the proceeds to purchase a retail shop, which qualifies as abusiness asset.

Required:

(i) Calculate Patricia’s chargeable gain (before the annual exemption) for the tax year 2005–06 on theassumption that Patricia always claims any reliefs available; (5 marks)

(ii) State the base cost of the retail shop for capital gains tax purposes. (1 mark)

(25 marks)

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4 (a) Norman has been in business as a sole trader since 1988. He runs his business from a small factory, which cost£175,000 on 1 October 1996. The factory had been purchased new, was taken into immediate industrial useon the day it was purchased and has been used continuously for industrial purposes ever since.

The £175,000 cost consisted of the following elements:

£Land 35,000Groundwork and tunnelling 27,000Drawing office 10,000Administration office 8,000Factory 90,000Legal fees (for the factory) 5,000

—————£175,000——————————

Norman sold the factory on 31 January 2006 for total sale proceeds of £190,000, including £60,000 for theland.

Norman makes his accounts up annually to 31 March.

Required:

Calculate Norman’s maximum industrial buildings allowances (IBA) for all years of entitlement including anybalancing adjustment in the year of disposal. (8 marks)

(b) In the tax year 2004-05 Norman’s final income tax liability was £8,600. In 2005-06 his final income tax liabilityis expected to be £10,400.

Required:

State the date(s) on which Norman’s 2005–06 income tax liability is due and calculate the amounts whichare payable on each of these date(s). (6 marks)

(c) For the tax year 2005-06 Norman had taxable trading income of £42,000.

Required:

Calculate the total national insurance contributions (NICs) payable by Norman for the tax year 2005–06.(4 marks)

(18 marks)


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Answers



ACCA Certified Accounting Technician Examination – Paper T9(GBR) December 2006 AnswersPreparing Taxation Computations (UK Stream) and Marking Scheme

Marks1 (a) Simon – Income tax payable 2005–06

Total Non-savings Savings DividendIncome

£ £ £ £Salary 70,000 0·5Bonus 11,500 0·5Benefits (see workings) 15,693 12·5

————97,193

Occupational pension (5% x £70,000) (3,500) 1Professional fees (210) 0·5

————Employment income 93,483 93,483Bank interest (£3,600 x 100/80) 4,500 4,500 1Dividends (£900 x 100/90) 1,000 1,000 1ISA dividend – exempt 0·5

———— ———— ———— ————Statutory total income 98,983 93,483 4,500 1,000Personal allowance (4,895) (4,895) 0·5

———— ———— ———— ————£94,088 £88,588 £4,500 £1,000———— ———— ———— ———————— ———— ———— ————

Extension of basic rate band: £32,400 + (£312 x 100/78) = £32,800 1

Tax payable:£ £

1st 2,090 x 10% 209 0·5Next 30,710 x 22% 6,756 0·5

————32,800

Next 55,788 x 40% 22,315 0·5————88,588

Savings 4,500 x 40% 1,800 0·5Dividend 1,000 x 32·5% 325 0·5

————31,405

Less tax deducted at source:Savings (20%) 900 0·5Dividend (10%) 100 0·5PAYE 23,150 (24,150) 0·5

———— ———— —–Tax payable £7,255 23

———— —–

Workings – benefitsTotal

£ £Car CO2 emission 198

Base figure (140)————

58 0·5————

Divided by 5 and rounded down 11 1Starting percentage 15 0·5

————Final percentage 26

————List price (£28,000 + £6,000) £34,000 1

————Benefit £34,000 x 26% x 9/12 £6,630 6,630 1

————————Fuel £14,400 x 26% x 9/12 £2,808 2,808 1

————————

15

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IXP

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16

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G MarksHouse The house is more than six years old when Simon first occupied it, therefore

the market value at occupation is used.

£Rateable value 8,000 0·5Additional:

(£250,000 – £75,000) x 5% 8,750 1.5—–——16,750—–———–——

6 months only -– 6/12 x £16,750 8,375 0·5Less contribution (3,600) 0·5

—–——£4,775 4,775—–———–——

Furniture £10,000 x 20% x 6/12 £1,000 1,000 1—–———–——

Parking Exempt 1

Expenses UK trips – exempt level is £5 per night. As payment is above this the full amount is taxable.£6 x 80 £480 480 1·5

—–———–——

Overseas trips – exempt level is £10 per night. Therefore the full amount is exempt. 1

——–——Total benefits £15,693

——–————–—— ——sub total to page fifteen 12·5

——

(b) Tax AdvisorsLondon12 December 2006Reference: XXX

Simon12 StreetLondon

Dear Sir

Furnished Holiday Letting

Thank you for your recent letter asking for information on the tax position regarding furnished holiday lettings.

To qualify as a furnished holiday letting (FHL) a property must fulfil the following conditions:

The property must be let furnished on a commercial basis with a view to the realisation of profit 1During the relevant period the property must be available for letting for at least 140 days 1During the relevant period the property must actually be let for at least 70 days 1During the relevant period, the same tenant may not occupy the property for more than 31 days for a total period comprising of no more than 155 days 1

The relevant period is normally the tax year but if the period of letting starts or ceases in a tax year the relevant period is the twelve months beginning or ceasing with the first or last days of the letting period. 1

The tax advantages of a property being treated as a FHL are:

Relief is given for losses as if they were trading losses, thereby allowing relief against other income 1Capital allowances on furniture will be available instead of the 10% wear and tear allowance 1The income qualifies as net relevant earnings for personal pension contributions 1The property is a business asset and therefore capital gains tax reliefs are available on disposal 1

If I can be of further assistance please do not hesitate to contact me on the above number.

Yours faithfully

A TechnicianPresentation 2

—11—

Total 34—



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Marks2 (a) (i) Broad Ltd – Adjusted trade profit – year ended 31 March 2006

£ £Net profit per accounts 1,240,000 0·5Less:UK dividends 18,000 0·5Interest 4,300 0·5Capital profit 84,000 (106,300) 0·5

———– —————1,133,700

add back:Gift aid payment 10,000 0·5Legal fees (lease) 8,000 18,000 0·5

———– —————1,151,700

less capital allowances (£328,000 x 25%) (82,000) 1—————

Adjusted trade profit £1,069,700——————————

Items not adjusted (0·5 for each of the four items) 2—6—

(ii) Broad Ltd – Corporation tax for the year ended 31 March 2006£ £

Adjusted trade profit 1,069,700 0·5Investment income 4,300 0·5Capital gain (w1) 70,504less loss brought forward (18,000) 52,504 1

–———– —————1,126,504

Charge on income:Gift aid (10,000) 0·5

—————Profit chargeable to corporation tax 1,116,504Franked investment income (£18,000 x 100/90) 20,000 1

—————Profits £1,136,504

——————————

Thresholds divided by two (associated companies):

£1,500,000/2 = £750,000£300,000/2 = £150,000 1

Broad Ltd must therefore pay tax at the full rate of 30%

Tax payable: £1,116,504 x 30% £334,951 1

Working:Gain:

Proceeds 140,000Cost (56,000) 0·5

–———–84,000

Indexation allowance0·241 x £56,000 (13,496) 1

–———– —£70,504 7–———– —–———–

(iii) Broad Ltd – payment of corporation tax

Broad Ltd is a large company and must therefore pay tax using the quarterly payment system.

£334,951/4 = £83,738————

7th month 14 October 2005 £83,738 110th month 14 January 2006 £83,738 113th month 14 April 2006 £83,738 116th month 14 July 2006 £83,738 1

—4—



Marks(iv) The return is due 12 months from the end of the accounting period i.e. 31 March 2007 1

(v) Records must be kept six years after the end of the accounting period i.e. 31 March 2012 1

(b) Blocked VAT

VAT is blocked and therefore can not be recovered on the following items:

(1) Motor cars not used 100% for business purposes(2) Business entertainment(3) Expenses incurred on domestic accommodation for directors(4) Non business items passed through the accounts

4—

Total 23—

3 (a) (i) Patrick – Capital gains tax for the tax year 2005–06GainsShares: Shares must be matched as follows:

Those purchased in the next 30 days i.e. 24 May 2005Those purchased since 5 April 1998 on a LIFO basis i.e. 22 September 2004

19 August 2000Shares in FA85 pool 1

£1,000

May 2005 Proceeds ——–– x £23,400 3,9006,000

Cost (4,400)————

£(500) 1·5————————

2,000September 2004 Proceeds ——–– x £23,400 7,800

6,000Cost (4,900)

————2,900 1·5

————————No taper relief: < 1 year

1,000August 2000 Proceeds ——–– x £23,400 3,900

6,000Cost (1,600)

————2,300 1·5

————————Taper relief 4 years: 90%

2,000FA 85 pool Proceeds ——–– x £23,400 7,800

6,000

2,000Cost ——–– x £8,670 (4,335)

4,000 ————£3,465 2

————————Taper relief 8 years (including the bonus year): 70%

Painting: Chattel sold at a loss for less than £6,000

Deemed proceeds 6,000Cost (6,500)

————£(500) 1·5

————————Building Proceeds 160,000

Indexed cost (92,170)Extension (19,000)

————£48,830 2————————

Taper relief 8 years (including the bonus year): 70%

18

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CP

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19

Summary of gains Marks

Losses taken from gains with the least taper relief entitlement

Gain Losses Net Taper % Net ofof losses taper relief

£ £ £ £2,900 (1,000) 1,900 nil 1,900 12,300 2,300 90 2,070 13,465 3,465 70 2,425 1

48,830 48,830 70 34,181 1————40,576

Annual exemption (8,500)———— 1£32,076————————

Tax payable:

Basic band remaining is (£32,400 – £30,400) = £2,000 1

£2,000 x 20% 400 0·5(£32,076 – £2,000) x 40% 12,030 0·5

————£12,430———— —————

18(ii) Due date of payment: 31 January 2007 1

—

(b) (i) Patricia – Chargeable gain 2005-06

Workshop Goodwill£ £

Proceeds 160,000 80,000Cost (40,000)

———–— ————£120,000 £80,000 1———–— ———————–— ————

Total gains 200,000 1Amount not reinvested (30,000)

———–— 1Rolled over gain £170,000 1

———–—Chargeable now £30,000Net of taper relief £7,500 1

———— ––————(75%: Business asset held > 2 years) 5

(ii) Base cost of asset

Market value 210,000Rolled over (170,000)

———–—£40,000 1

———–————–— —Total 25

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4 (a) Norman – Industrial buildings allowance Marks

Allowable cost: £Groundwork 27,000 0·5Drawing office 10,000 0·5Factory 90,000 0·5Legal fees 5,000 0·5Administration office 8,000*

————–£140,000———–————–—

Land is not an allowable cost 1

* 8,000———– x 100 = 5·71% (less than 25%) 1140,000

Year endedCost IBA

£ £31 March 1997 140,000WDA – 4% (5,600) £5,600 1

————– ————–————– ————–134,400

31 March 1998to31 March 2005WDA – 4% x 8 years (44,800) £44,800 1

————– ————–————–89,600

31 March 2006Proceeds (130,000) 1

————–Balancing charge (40,400)

40,400 £(40,400) 1————– ————–————–

nil —8—

(b) Norman – Due dates of payment

Payment on accounts (POA) are due for 2005-06 based on the amount paid in 2004–05.

1st POA 31 January 2006 50% x £8,600 £4,300 22nd POA 31 July 2006 50% x £8,600 £4,300 2Balance 31 January 2007 (£10,400 – £8,600) £1,800 2

————£10,400———— —————

6—

(c) Norman – National insurance contributions

Norman must pay class 2 and class 4 national insurance contributions

£ £Class 2: £52 weeks x £2·10 109 1Class 4: 1st £4,895 nil 0·5Next (£32,760 – £4,895) x 8% 2,229 1Remainder (£42,000 – £32,760) x 1% 92 2,321 1

——— ————£2,430 0·5———— —————

4—

Total 18—

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ADVANCED LEVEL


QUESTION PAPER







Pape

r T9

(GB

R)




Income tax



Personal allowance


Company car benefit


Car fuel benefit





Annual allowance £215,000

The maximum contribution that can qualify for tax relief without any earnings is £3,600.

Official rate of interest

5%

2



Capital allowances






Corporation tax

Financial year 2004 2005 2006Small companies rate 19% 19% 19%Full rate 30% 30% 30%Small companies rate lower limit £300,000 £300,000 £300,000Small companies rate upper limit £1,500,000 £1,500,000 £1,500,000Marginal relief fraction: 11/400 11/400 11/400

Marginal relief


Value added tax



Individuals £8,800

3 [P.T.O.





% %1 50 1002 25 1003 25 954 25 905 25 856 25 807 25 758 25 709 25 6510 25 60





Class 1A 12·8



Where weekly or monthly calculations are required the Class 1 limits shown above shouldbe divided by 52 (weekly) or 12 (monthly) as applicable.




4




1 (a) Stephen, aged 47, married his wife, Rebecca, 14 years ago. Both Stephen and Rebecca work for the samecompany. Stephen is a departmental manager and earns a gross salary of £47,000 per annum. Rebecca, whowas employed by the same company from 6 April 2006 onwards, is a sales manager and earns a gross salaryof £40,700 per annum.

Stephen received taxable non-cash benefits amounting to a total of £2,400 for the tax year 2006–07 andbonuses of £4,000 paid in May 2006 and £5,000 paid in May 2007. These bonuses were paid in respect ofthe company’s accounting periods ending 30 November 2005 and 30 November 2006, respectively.

Rebecca received taxable non-cash benefits totalling £2,000, but did not receive any bonuses during the tax year2006–07.

Stephen pays 5% of his gross salary each year into the company pension scheme. The company contributes anamount equal to 2% of Stephen’s gross salary into the same scheme.

Rebecca is not a member of the company pension scheme. Instead, she pays gross contributions, equal to 8%of her total gross employment income, into a personal pension plan.

During 2006–07 the company deducted income tax of £11,100 from Stephen’s earnings and £7,900 fromRebecca’s earnings, under PAYE.

Stephen and Rebecca received the following amounts of interest in the tax year 2006–07:

Stephen Rebecca£ £

UK bank interest 240 160National Savings Certificate interest 400 –

The amounts shown are the cash amounts received.

Stephen and Rebecca also have a joint building society account from which they received a total of £760 (afterdeduction of tax) in interest for the tax year 2006–07.

Rebecca has also paid patent royalties amounting to £780 (cash amount paid) during 2006–07, in respect of aformer sole trader business, which had ceased in March 2006.

Required:

(i) Calculate the income tax payable by Stephen for the tax year 2006–07; (10 marks)

(ii) Calculate the income tax payable by Rebecca for the tax year 2006–07. (10 marks)

(b) Rebecca has recently received an amendment to her tax self-assessment for the year 2005–06 which says shehas underpaid tax of £1,350 and she intends to appeal.

She has asked you, as her tax advisor, to outline the appeals procedure.

Required:

Write a letter to Rebecca (using fictitious addresses) outlining the appeals procedure that she must follow.


(c) Rebecca’s brother, Simon, intends to start a new business soon. He will lease a small workshop for businesspurposes, paying a lease premium of £16,000 for a 16-year lease.

Required:

Calculate the amount Simon will be able to deduct each year from his business profits in respect of thispremium. (4 marks)

(34 marks)

5 [P.T.O.



2 (a) Beach Ltd is a UK resident company manufacturing surfboards, water skis and other water sports equipment.Beach Ltd is a registered company for value added tax (VAT) purposes.

Beach Ltd had the following capital transactions during the company’s twelve-month accounting period ended31 December 2006:

Purchases:

12 February 2006 – A car costing £18,800 (note 2)19 March 2006 – A computer costing £4,935 (note 3) 30 October 2006 – A delivery van costing £15,275

Disposals:

12 May 2006 – A machine sold for £7,050. (note 4)

Notes:1. All amounts shown are stated inclusive of VAT2. The new car was for the sole use of a director who will use it 40% for business purposes and 60% for private

purposes.3. The computer is to be treated as a short life asset.4. The machine sold had originally cost £9,400 in August 2005.5. The balance brought forward on the plant and machinery pool, for capital allowances purposes, on

1 January 2006 was £28,000.6. Beach Ltd satisfies the conditions for small company status for capital allowance purposes.

Required:

Calculate the maximum capital allowances claimable by Beach Ltd for the twelve-month accounting periodended 31 December 2006. (8 marks)

(b) Coastal Activities Ltd, which had been trading for the last fifteen years, decided to cease trading on 31 March2007, because of falling profits and strong competition.

Coastal Activities Ltd had the following results in its last five accounting periods.

Year ended Year ended 9 months ended Year ended Year ended30 June 2003 30 June 2004 31 March 2005 31 March 2006 31 March 2007

£ £ £ £ £Trading profit 16,000 15,000 9,000 8,000 –Trading loss – – – – (42,000)Investment income 1,000 800 600 200 –Capital gain 4,000 – – – 3,000Capital loss – – – (1,000) –Gift aid payment (100) – (100) – (100)

Required:

Calculate the final profits chargeable to corporation tax (PCTCT) for each of the above accounting periods,on the assumption that Coastal Activities Ltd will claim the maximum loss reliefs available.

Note: You are NOT required to calculate the amount of corporation tax due or repayable.(8 marks)

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(c) Sea, Sand and Surf Ltd (SSS Ltd) is a UK registered company. SSS Ltd is registered for value added tax (VAT).

During the three-month period ended 31 December 2006, SSS Ltd carried out the following transactions:

£Sales (exclusive of VAT, where applicable):Standard-rated 120,000Zero-rated 18,000

Purchases: (exclusive of VAT)Goods for resale (all standard-rated) 58,000

Expenses (inclusive of VAT, where applicable):Wages of staff 28,000Electricity 3,525Accountancy fees 1,410Buildings insurance 940

Bad debts totalling £1,400 (exclusive of VAT) were written off during the above period. This amount comprisedtwo debts, one for £600, due to have been paid in May 2006, and one for £800 due to have been paid in July2006.

Required:

Calculate the value added tax (VAT) payable or reclaimable by Sea Sand and Surf Ltd for the three-monthperiod ended 31 December 2006. (7 marks)

(23 marks)

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3 (a) Aaron made the following disposals of capital items in the tax year 2006-07:

15 June 2006: A bronze statuette was sold for £7,200. The statuette had originally cost £4,100 in May 2004.

14 August 2006: His entire holding of 12,000 shares in ABC plc, a UK trading company quoted on the stockexchange, was given to his friend Adele. The shares had cost Aaron £6,600 in May 2001.

On 14 August 2006 ABC plc shares had a closing price of 140p–152p. Marked bargains during the day hadbeen: 139p, 143p 148p and 155p.

Both the shares and the statuette were classed as non-business assets for the purposes of taper relief.

Aaron had unused capital losses of £800 brought forward from the tax year 2005–06.

Aaron had taxable income for 2006–07 of £38,000.

Required:

Calculate Aaron’s capital gains tax payable for the tax year 2006–07. (10 marks)

(b) Adele purchased a painting in May 2001 for £24,500. It was destroyed by fire in December 2006. Adelereceived £29,000 compensation from an insurance company and immediately reinvested £28,000 in anotherpainting to replace the one destroyed.

Required:

(i) Calculate the chargeable gain arising in 2006–07; (3 marks)

(ii) State the base cost of the replacement painting. (1 mark)

(c) Vernon purchased a house, as his only residence, on 1 June 1997 and occupied it immediately. Between 1 May1998 and 31 August 2006 Vernon was required, by his employer, to take up a temporary post in another UKcity. During this period Vernon let his house to tenants and occupied a flat, provided by his employer, near to histemporary post.

On 31 August 2006 Vernon sold his house, without ever re-occupying it, and went to live with his mother inScotland.

Required:

(i) State, giving reasons, in respect of Vernon’s entire period of ownership, the dates of each period coveredby, or not covered by, either principal private residence (PPR) relief or letting relief;

Note: The calculation of PPR relief is not required.(4 marks)

(ii) State how the maximum amount allowed for letting relief is calculated.

Note: You are not required to calculate the amount of letting relief available.(3 marks)

(21 marks)

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4 (a) Leon operates a small unincorporated business in Yorkshire. His most recent set of accounts was for the yearended 31 October 2006 and showed the following results:

Notes £ £Gross operating profit 110,000Add:Interest received (net) 1 240Rental income received 2 4,400

––––––––114,640

Less expenses:Wages and salaries 3 67,590Lighting and heating 4 720Rates 5 2,000Depreciation – vehicles 400

– machinery 600Loan to a former employee written off 180Bank overdraft interest 140Donations 6 300Legal fees 7 700Motor car expenses 8 2,580Miscellaneous expenses 9 930Loss on sale of machinery 200

––––––––(76,340)

––––––––Net profit per accounts £38,300

––––––––––––––––

Notes:

1. The interest received is the amount due on cash deposited with a local building society.

2. The rental income represents the amount received on a small workshop let to another trader. The annualrent due is £4,800 and the tenant paid the £400 outstanding amount in March 2007.

3. Wages and salaries comprise the following:

£Gross payments of salary to staff 34,508Employer’s national insurance contributions 1,590Drawings by Leon 26,500Payments to Emily (Leon’s wife) 4,992

––––––––£67,590––––––––

Emily works 16 hours a week for 40 weeks a year. Other staff on similar contracts receive £6·50 per hour.

4. Leon and Emily live in a flat above the business premises. HM Revenue and Customs (HMRC) have agreedthat 60% of the total heating and lighting cost incurred had been used in the flat and 40% in the business.

5. Rates comprise the following:

£Council tax for the flat 800Business rates for the shop 1,200

–––––––£2,000–––––––

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6. Donations during the year were made to the following:

£Oxfam – a registered charity (Gift aid) 200A local church 100

–––––£300–––––

7. Legal fees comprise £400 for trade debt collection and £300 for legal work regarding the collection of theoutstanding rent.

8. Motor car expenses comprise the following:

£Running costs (including petrol) 2,400Parking fines – Leon 120

– Staff 60(both fines occurred whilst the individuals were on business purposes)

–––––––£2,580–––––––

HMRC has agreed that the motorcar running costs are to be split 70% for private use and 30% for businessuse.

9. Miscellaneous expenses comprise the following:

£Advertising 300Telephone calls (all business) 400Gifts to customers(bottles of whisky costing £11·50 each) 230

–––––£930–––––

10. Capital allowances for the period have been calculated as £2,400.

11. Leon took goods from stock for his own use. These goods had cost £1,400 and this amount is included inthe purchases total, but has not been included in the sales total. The profit margin on these goods is 20%of the selling price.

Required:

Calculate Leon’s adjusted trading profit for the year ended 31 October 2006. (14 marks)

(b) Leon’s understanding of national insurance contributions (NIC) is very poor. He knows he must account for andpay NIC in respect of himself and his staff but does not know how to do this.

All of his staff are paid monthly and none receive any benefits.

Required.

List the classes of national insurance contributions (NIC) that Leon must account for, for both himself andhis staff. In each case state on what income they are calculated and by when they should be paid to HMRC.

Note: You are not required to calculate the actual amounts of NIC due.(8 marks)

(22 marks)


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Answers



ACCA Certified Accounting Technician Examination – Paper T9(GBR) June 2007 AnswersPreparing Taxation Computations (UK Stream) and Marking Scheme

Marks1 (a) (i) Stephen – Income tax payable for the tax year 2006–07

Total Non-savings Savingsincome income

£ £ £Salary 47,000 47,000 0·5Benefits 2,400 2,400 0·5Bonus 4,000 4,000 1Pension contributions (£47,000 x 5%) (2,350) (2,350) 1

–––––––– –––––––– –––––Employment income 51,050 51,050Bank interest (£240 x 100/80) 300 300 1Building society interest (£760/2 x 100/80) 475 475 1National savings certificate interest – exempt 1

–––––––– –––––––– –––––Statutory total income 51,825 51,050 775Personal allowance (5,035) (5,035) 0·5

–––––––– –––––––– –––––Taxable income £46,790 £46,015 £775

–––––––– –––––––– –––––

Company pension contributions – exempt benefit 0·5

Tax payable:£ £

1st 2,150 x 10% 215 0·5Next 31,150 x 22% 6,853 0·5

–––––––33,300

Next 13,490 x 40% 5,396 0·5––––––– –––––––46,790 12,464

Less tax deducted at source:Savings £775 x 20% (155) 1PAYE (11,100) 0·5

–––––––– –––Tax payable £1,209 10

–––––––– –––––––––––

(ii) Rebecca – Income tax payable for the tax year 2006–07Total Non-savings Savings

income income£ £ £

Salary 40,700 40,700 0·5Benefits 2,000 2,000 0·5

–––––––– ––––––––Employment income 42,700 42,700Bank interest (£160 x 100/80) 200 200 1Building society interest (£720/2 x 100/80) 475 475 1

–––––––– –––––––– –––––43,375 42,700 675

Patent royalties (£780 x 100/78) (1,000) (1,000) 1–––––––– –––––––– –––––

Statutory total income 42,375 41,700 675Personal allowance (5,035) (5,035) 0·5

–––––––– –––––––– –––––Taxable income £37,340 £36,665 £675

–––––––– –––––––– –––––

Extension of basic rate band £33,300 + (8% x £42,700) = £36,716 1

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Marks£ £

1st 2,150 x 10% 215 0·5Next 34,515 x 22% 7,593 0·5

–––––––36,665

Savings 51 x 20% 10 0·5–––––––36,716

Savings 624 x 40% 250 0·5––––––– ––––––––37,340 8,068

Add tax retained on patent royalties:£1,000 x 22% 220 1

––––––––Tax liability 8,288Less tax deducted at source:

Savings (£675 x 20%) (135) 1PAYE (7,900) 0·5

–––––––– –––Tax payable £253 10

–––––––– –––––––––––

(b) Tax Advisors LtdGlasgow

12 June 2007

Reference: XXX

RebeccaThe AvenueGlasgow

Dear Rebecca

Appeals procedure

Thank you for your recent letter asking for information regarding the appeals procedure for your recent taxassessment.

The first step is to appeal to the HMRC inspector, in writing within 30 days. The appeal must state thegrounds on which the appeal is based. 2

You are required to pay the tax requested unless you also ask for the postponement of the tax at the sametime as the appeal is due. 2

If you do not agree with the inspector’s decision the next step is to appeal to the commissioners. There are 1two types of commissioners, the general commissioners who usually hear appeals based on straightforward 2matters, and the special commissioners who generally hear appeals on more complex points of law.

A decision made on a matter of fact is final, but a decision on a point of law can be appealed further via thecourt system. 2

You should bear in mind that you may have to meet all costs yourself as, even if you win, costs may not beawarded. 2

If I can be of further assistance please do not hesitate to contact me.

Yours sincerely

Tax Technician1 mark for each valid point – maximum of 8Marks may be awarded for other relevant pointsStyle and presentation 2

–––10–––

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Marks(c) Simon – Lease deduction

Amount taxable on landlord:£

Premium 16,0002% (16 – 1) x £16,000 (4,800) 2

––––––––Property business income £11,200 1

––––––––––––––––

Simon’s deduction:£11,200 = £700 per annum 1––––––– –––

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2 (a) Beach Ltd – Capital allowances for the year ended 31 December 2006

FYA General Expensive Short life CAspool car asset

£ £ £ £ £Balances brought forward 28,000 0·5Purchases:Car 18,800 1Computer (£4,935 x 40/47) 4,200 1Van (£15,275 x 40/47) 13,000 1Disposals:Machine (£7,050 x 40/47) (6,000) 1

––––––– –––––––– –––––––– –––––––13,000 22,000 18,800 4,200

WDA – 25% (5,500) (3,000) 8,500 1·5FYA – 40% x £4,200 (1,680) 1,680 1FYA – 50% x £13,000 (6,500) 6,500 1Transfer (6,500) 6,500

––––––– –––––––– –––––––– ––––––– ––––––––Balances carried forward £23,000 £15,800 £2,520

–––––––– –––––––– ––––––––––––––– –––––––– ––––––– –––Capital allowances £16,680 8

–––––––– –––––––––––

(b) Coastal Activities Ltd – Profits chargeable to corporation taxfor the years ended 30 June 2003 to 31 March 2007

Accounting periods ended30 June 30 June 31 March 31 March 31 March2003 2004 2005 2006 2007

£ £ £ £ £Trading profit 16,000 15,000 9,000 8,000 nil 1Investment income 1,000 800 600 200 – 1Capital gains 4,000 – – – 2,000 1·5

–––––––– –––––––– ––––––– –––––– ––––––21,000 15,800 9,600 8,200 2,000

Loss relief – S393 A(1) (5,250) (15,800) (9,600) (8,200) (2,000) 3–––––––– –––––––– ––––––– –––––– ––––––

15,750 nil nil nil nilGift aid (100) – wasted – wasted 1·5Profits chargeable to

–––––––– –––––––– ––––––– –––––– –––––– –––corporation tax £15,650 nil nil nil nil 8

–––––––– –––––––– ––––––– –––––– –––––– ––––––––––– –––––––– ––––––– –––––– ––––––

£Loss memo: 31 March 2007 42,000

31 March 2007 (2,000)31 March 2006 (8,200)31 March 2005 (9 months) (9,600)30 June 2004 (15,800)30 June 2003 (£21,000 x 3/12) (5,250)

–––––––£1,150 wasted––––––––––––––

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Marks(c) Sea, Sand and Surf Ltd – Value added tax for the quarter ended 31 December 2006

£ £Output tax:Standard rated sales £120,000 x 17·5% 21,000 1Input tax:Purchases of goods for resale £58,000 x 17·5% 10,150 1Electricity £3,525 x 7/47 525 1Accountant’s fees £1,410 x 7/47 210 1Bad debts £600 x 17·5% 105 (10,990) 1

––––––– ––––––––VAT payable £10,010 0·5

––––––––––––––––

Wages – outside the scope of VAT 0·5Insurance – exempt 0·5Bad debt in July 2006 – not six months old 0·5

–––7

–––23–––

3 (a) Aaron – Capital gains tax for the tax year 2006–07

Bronze statuette: £Proceeds 7,200Cost (4,100)

–––––––£3,100 1––––––––––––––

Restricted to:(£7,200 – £6,000) x 5/3rds £2,000 1·5

No taper relief – owned for less than three years

Gift of shares: £Proceeds 143p* x 12,000 17,160Cost (6,600)

––––––––£10,560 1––––––––––––––––

Taper relief – owned for five years – 85%

* share value is lower of: 0·51/4 up

140p + 1/4(152p – 140p) = 143p 1

orAverage

1/2(139p + 155p) = 147p 1

Tax payable:

Loss used against statuette – disposal with the least taper£

£2,000 – £800 (capital loss brought forward) 1,200 1£10,560 x 85% (taper) 8,976 1

–––––––Chargeable gains 10,176Annual exemption (8,800) 1

–––––––Taxable gains £1,376

––––––––––––––Capital gains tax at 40% £550 1

–––––––––––––– –––10–––

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Marks (b) (i) Adele – Compensation receipt

£Proceeds 29,000Cost (24,500)

––––––––4,500

Chargeable now (amount not reinvested) (1,000)––––––––

Deferred to replacement £3,500 2––––––––––––––––

Taper relief 85% (five years)

Gain £1,000 x 85% £850 1––––––––––––––––

(ii) Base cost of new painting£

Cost 28,000Deferred (3,500)

––––––––£24,500 1–––––––––––––––– –––

4–––

(c) (i) Vernon – Principal private residence relief

Period Chargeable Exempt Let Reason1 June 1997–30 April 1998 x Owner occupied 11 May 1998–30 April 2002 x Working elsewhere in

UK – maximum of 1four yearsHMRC will notnormally insist onre-occupation forperiods involvingworking elsewherein UK

1 May 2002–31 August 2003 x x Did not re-occupy –three years for anyreason does not apply 1

1 September 2003–31 August 2006 x Last three years ofownership 1

–––4

–––

(ii) Maximum letting relief

Letting relief is the lower of:

An amount equal to the principal private residence relief 1The amount of the gain attributable to the letting period 1A maximum amount of £40,000 1

–––3

–––21–––

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Marks4 (a) Leon – Adjusted trading profit for the year ended 31 October 2006

£ £Net profit per accounts 38,300 0·5Deduct:Interest received (240) 0·5Rent received (4,400) 1

––––––––33,660

Add back:Wages – Drawings (Leon) 26,500 0·5

Emily (w1) 832 1Lighting and heating (£720 x 60%) 432 0·5Council tax 800 0·5Depreciation (£600 + £400) 1,000 1Loan to former employee written off 180 0·5Donations – Oxfam 200 0·5Legal fees – outstanding rent collection 300 0·5Car expenses:

Parking fees (Leon) 120 0·5Running costs (£2,400 x 70%) 1,680 0·5

Miscellaneous – Gifts 230 0·5Loss on sale of machinery 200 32,474 0·5

––––––– ––––––––66,134

Goods for personal use (£1,400 x 100/80) 1,750 1––––––––

67,884Capital allowances (2,400) 0·5

––––––––Adjusted trading profit £65,484

––––––––––––––––

Items unadjustedStaff salaries 0·5Employer’s NIC 0·5Business rates 0·5Church donation 0·5Trade debt collecting 0·5Staff fines 0·5Advertising/Telephones 0·5

–––14–––

Working 1£

Paid 4,992Equivalent amount due:(16 x 40) x £6·50 per hour (4,160)

–––––––Adjustment required £832

––––––––––––––

(b) Leon – National insurance contributions (NIC)

Class Calculation based on Payable to HMRC byIn respect of staff:1 (primary) (Employee) Cash payments 19th of the month following payment to employee 2

1 (secondary) (Employer) Cash payments 19th of month following payment to employee 1·5

In respect of Leon:2 Weekly rate of £2·10 Monthly or quarterly billing 1·5

4 Taxable profits less Payment on account – 31 January in the tax yearloss relief claimed Payment on account – 31 July following the tax year

Balance – 31 January following tax year 3–––8

–––22–––

18



Certified Accounting Technician ExaminationAdvanced Level

Time allowedReading and planning: 15 minutesWriting: 3 hours

ALL FOUR questions are compulsory and MUST be attempted.

Tax rates and allowances are on pages 3–5.

Do NOT open this paper until instructed by the supervisor.

During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet untilinstructed by the supervisor.

This question paper must not be removed from the examination hall.

Pape

r T9

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Tuesday 11 December 2007





2



Supplementary Instructions

1. Calculations and workings need only be made to the nearest £.

2. All apportionments should be made to the nearest month.

3. All workings should be shown.

Tax Rates and Allowances


Income tax



Personal allowance


Company car benefit


Car fuel benefit




Pension scheme limits


The maximum contribution that can qualify for tax relief without evidence of earnings is£3,600.


5%

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Capital allowances






Corporation tax


Marginal relief


Value added tax



Individuals £8,800

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% %1 50 1002 25 1003 25 954 25 905 25 856 25 807 25 758 25 709 25 6510 25 60





Class 1A 12·8




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1 (a) Mary works for AB(UK) Ltd, a large UK resident company, and earns an annual gross salary of £50,000. Duringthe tax year 2006–07 she received the following benefits:

– A loan to help her purchase a yacht. AB(UK) Ltd advanced her £40,000 on 6 April 2006 and charged herinterest at the rate of 1% per annum. Mary repaid £8,000 of the loan on 6 July 2006, but the remaining£32,000 remains outstanding.

– Use of a 1600 cc diesel Vauxhall car, with a CO2 emission rate of 196 grams per kilometre and arecommended list price of £15,000. The car was first provided to Mary on 6 September 2006 for both herprivate and business use. The private usage is 40% and the business usage 60%. The company pays forall the running costs of the vehicle, which amounted to £1,800 for the period to 5 April 2007. Mary wasrequired to contribute £20 per month towards the private use of the car and £10 per month towards thecost of private fuel.

– Use of a home cinema system. This was first provided to Mary to use at home on 6 April 2003, the date itwas purchased by AB(UK) Ltd at a cost of £4,000. The system was gifted to Mary outright on 5 April 2007,when it was worth £900.

– Occupational pension contributions amounting to £4,000 during 2006–07. These were paid by AB(UK)Ltd, on Mary’s behalf.

Required:

(i) Calculate the total value of benefits provided to Mary for the purposes of income tax, for the tax year2006–07. (16 marks)

(ii) State which HM Revenue and Customs (HMRC) form AB(UK) Ltd is required to complete to report thesebenefits and the date by which it should be submitted. (2 marks)

(b) Mary’s husband Patrick has worked for AB(UK) Ltd since 2004 and he has provided you with the followinginformation regarding his income and outgoings for the tax year 2006–07:

Income

– A gross salary of £65,000. – A bonus of £8,000, received in May 2006, in respect of the company’s accounting year ended

31 December 2005. A bonus of £10,000 was received in May 2007 in respect of AB(UK) Ltd’s accountingyear ended 31 December 2006.

– Taxable benefits with a value for tax purposes of £4,350.– Dividends received from UK companies of £1,800.– Interest credited to his bank account of £2,400.– Interest received from national savings certificates of £400.– Premium bond prizes received of £1,500.

Expenditure

– Pension contributions paid to AB (UK) Ltd’s HMRC approved occupational pension scheme of £400 permonth.

– A donation of £780 (net) paid to a UK registered charity in August 2006 under the gift aid scheme.

Tax, amounting to £21,400, for 2006-07 was deducted from Patrick’s employment income by PAYE.

Required:

Calculate the income tax payable by Patrick for the tax year 2006–07. (11 marks)

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(c) Patrick and Mary have two children, Anita aged 14 and Gregory aged 19.

Anita’s only income in the tax year 2006–07 was £500 (net) interest received from savings invested in a buildingsociety account.

Gregory’s only income for the tax year 2006–07 was dividends of £360 from shares held in a UK company.

Neither Patrick nor Mary provided the capital, which generated the above amounts of income.

Required:

State the tax refund (if any) due to Anita and Gregory respectively for the tax year 2006–07, giving reasonswhy a refund is due or is not due. (3 marks)

(32 marks)

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2 (a) United plc is a UK resident company. It owns 80% of City Ltd, 62% of Rovers plc and 40% of Wanderers Ltd.

During its accounting year ended 31 March 2007 United plc made a trading profit, fully adjusted for taxpurposes but before the deduction of capital allowances, of £256,000

United plc has provided you with the following additional information for the year ended 31 March 2007:

– 4,000 shares in Town Ltd were sold for £40,000 on 17 May 2006. United plc had purchased Town Ltdshares as follows:

3,000 shares in May 1997 for £6,0005,000 shares in August 2004 for £18,000

The total holding represented less than 1% of Town Ltd’s issued share capital.

The following indexation factors are to be used:

May 1997 to August 2004: 0·194August 2004 to May 2006: 0·042

– United plc received dividends of £9,000 from Wanderers Ltd.

– Rental income of £12,000 was receivable for the year, of which £3,000 was still outstanding as at 31 March 2007.

– Bank interest of £1,600 was received. This was the full amount receivable for the year ended 31 March2007.

– Interest of £600 was paid in respect of money borrowed for non-trade purposes. This was also the fullamount due for the year ended 31 March 2007.

– The balance on the general pool for capital allowance purposes on 1 April 2006 was £126,000.

– A new machine costing £40,000 was purchased on 14 May 2006. This was to replace an unwantedmachine, which had cost £18,000 in September 1997, and which was sold for £6,000 in June 2006.

– A car costing £24,000 was purchased for use by the finance director in August 2006. This car is used 40%for private purposes and 60% for business purposes. The car is not a low-emission car.

United plc is classed as a small business for the purposes of capital allowances.

Required:

(i) Calculate the capital gain on the disposal of the Town Ltd shares on 17 May 2006. (4 marks)

(ii) Calculate the maximum capital allowances that United plc can claim for the year ended 31 March 2007.(5 marks)

(iii) Calculate the corporation tax payable by United plc for the year ended 31 March 2007. (9 marks)

(iv) State the due date of payment of the corporation tax calculated in (iii) above. (1 mark)

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(b) Athletic Ltd is a small UK registered company, which is not yet registered for value added tax (VAT). The companystarted to trade on 1 December 2007 and its forecast total sales for the periods shown are expected to be:

1 December 2007 to 29 February 2008 £15,0001 March 2008 to 31 May 2008 £21,0001 June 2008 to 31 August 2008 £42,000

You should assume that all sales are made evenly throughout the periods shown.

The above figures are exclusive of VAT.

Required:

(i) State the date by which Athletic Ltd will have to notify HM Revenue and Customs (HMRC) of its needto register for VAT. Include workings to support your answer. (3 marks)

(ii) State the date by which Athletic Ltd will be compulsorily registered for VAT. (1 mark)

(iii) On the assumption that Athletic Ltd only makes standard rated sales and does not join the annualaccounting scheme, state the length of the company’s normal VAT return period and by when the VATreturn must be received by HMRC. (2 marks)

(25 marks)

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3 (a) Donald made the following disposals of assets in the tax year 2006–07:

14 June 2006: 4,000 shares in XYZ plc were sold for £18,000. Donald’s record of purchases of XYZ plc’s sharesis as follows:

14 October 2000 4,000 shares for £6,00018 May 2004 A 1 for 2 rights issue at £2·50 per share was taken up in full

19 November 2006: A cricket bat, signed by the English cricket squad, was sold for £5,800. It had beenpurchased for £3,500 in September 2005.

2 February 2007: A house, which had never been Donald’s main residence, was sold for £340,000. It had beenpurchased in May 1996 for £125,000 and had been extended at a cost of £28,000 in August 1997. A secondextension costing £36,000 was added in July 2004. The indexed cost of the house (including the first extension)on 6 April 1998 was £161,600.

None of the above assets were business assets.

Required:

Calculate Donald’s chargeable gains (after taper relief) for the tax year 2006–07. (10 marks)

(b) Caroline has taxable income, after the deduction of her personal allowance, for the tax year 2006–07 of£33,000.

Caroline disposed of four assets during the tax year 2006-07 with the following results:

Date sold Date purchased Gain/lossBusiness asset 1 14 May 2006 2 June 1997 £40,000 gainBusiness asset 2 17 November 2006 15 March 1999 £(4,000) lossNon business asset 1 14 January 2007 12 August 2001 £3,000 gainNon business asset 2 23 March 2007 8 June 1997 £2,000 gain

In addition, Caroline has unused capital losses brought forward as at 6 April 2006 amounting to £3,000.

Required:

(i) Calculate the capital gains tax payable by Caroline for the tax year 2006–07. (7 marks)

(ii) State the due date of payment of the tax calculated in (i) above. (1 mark)

(c) Bernadette is a sole trader. On 14 September 2006 she sold an asset, which had always been used in herbusiness, to her brother Billy, for £26,000. The asset had cost Bernadette £18,000 in August 1999 and it hada market value on 14 September 2006 of £45,000.

Required:

(i) Calculate Bernadette’s chargeable gain (after taper relief) on the disposal of the asset, assuming thatBernadette and Billy make any beneficial claims or elections to reduce the tax payable on the gift.

(4 marks)

(ii) State the capital gains tax base cost of the asset for Billy. (1 mark)

(23 marks)

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4 (a) Bobby started in business as a sole trader on 1 February 2004. His first set of accounts were made up for thesixteen month period ending 31 May 2005. Accounts were made up annually thereafter. His adjusted tradingprofits after capital allowances for his first three accounting periods were as follows:

Period to 31 May 2005 £24,000Year to 31 May 2006 £36,000Year to 31 May 2007 £46,000

Required:

(i) Calculate Bobby’s assessable profits for the first four tax years of his business, clearly stating the basisperiods that apply. (5 marks)

(ii) Calculate the amount of overlap profits for all of the tax years covered in (i) above. (2 marks)

(b) On the first day of his business, 1 February 2004, Bobby purchased a second hand factory to carry on hismanufacturing trade. He paid £80,000 to the original owner, who had purchased the factory on 1 September2000 for £70,000. The factory has always been used for a qualifying manufacturing purpose.

Required:

Calculate how much industrial buildings allowance (IBA) Bobby would have been able to claim for theaccounting period ended 31 May 2005. (4 marks)

(c) Bobby is about to employ his first salesman. The salesman’s salary will be £36,000 per year and he will be giventhe use of a company car, which has a taxable benefit of £3,200. Bobby knows there is a requirement tocalculate and account for national insurance contributions (NIC) but is not sure how to do so in this case.

The salesman will be not-contracted out for the purposes of NIC and will be paid a gross monthly salary of£3,000.

Bobby has written to you, his tax adviser, requesting details of his NIC obligations in respect of the salesman.

Required:

Write a letter to Bobby, using fictitious addresses, explaining:

– the classes of NIC suffered by both Bobby, as employer, and the salesman, as employee;– the amount of NIC that will be suffered in each case (calculated on a monthly basis where applicable);

and,– the dates by which any NIC due will be payable to HM Revenue and Customs (HMRC).

Note: You are NOT required to calculate Bobby’s own personal NIC liability, only the NIC suffered in respectof Bobby as an employer and that of the salesman, as employee.


(20 marks)


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Answers



ACCA Certified Accounting Technician Examination – Paper T9 (UK) December 2007 AnswersPreparing Taxation Computations (United Kingdom) and Marking Scheme

Marks1 (a) (i) Mary – Benefits 2006-07 £

LoanAverage method

£40,000 + £32,000= £36,000–––––––––––––––––––

2£36,000 x (5% – 1%) = £1,440 1·5

––––––––––––––––

Strict statutory method£40,000 x (5% – 1%) x 3/12 = 400£32,000 x (5% – 1%) x 9/12 = 960

––––––––£1,360 2

––––––––––––––––

Mary would choose to be taxed on the figure calculated using the lower 1,360 0·5strict statutory method

CarCO2 emission 196Base figure (140)

––––––––56 0·5

––––––––Divided by 5 and rounded down 11 1Starting percentage 15 0·5Diesel addition 3 0·5

––––––––Final percentage 29

––––––––––––––––List price £15,000 0·5

––––––––––––––––Benefit £15,000 x 29% x 7/12 2,538 1Contribution £20 x 7 months (140) 1

––––––––£2,398 2,398

––––––––––––––––

Fuel £14,400 x 29% x 7/12 2,436 1·5(contributions are not deductible)

Cinema systemUse £4,000 x 20% £800 1

Gift Current market value £900 0·5––––––––––––––––

orOriginal cost £4,000less 20% for:2003–04 (800)2004–05 (800)2005–06 (800)2006–07 (800)

––––––––£800 2

––––––––––––––––The higher amount is taken £900 1,700 1

–––––––– ––––––––

Pension contributions exempt 1–––16–––

Total benefits for 2006–07 £7,894––––––––––––––––

(ii) AB (UK) Ltd must submit form P11D to HM Revenue and Customs (HMRC) in respect of Mary by 6 July 2007 2

–––

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Marks(b) Patrick – Income tax payable 2006–07

Total Non-savings Savings Dividendsincome income

£ £ £ £ £Salary 65,000 0·5Bonus 8,000 0·5Benefits 4,350 0·5

–––––––77,350

Pension contributions (£400 x 12) (4,800) 1–––––––

Employment income 72,550 72,550Dividend (£1,800 x 100/90) 2,000 2,000 1Bank interest (£2,400 x 100/80) 3,000 3,000 1NSC interest – exempt 0·5Premium bond winnings – exempt 0·5

–––––––– –––––––– ––––––– –––––––Statutory total income 77,550 72,550 3,000 2,000Personal allowance (5,035) (5,035) 0·5

–––––––– –––––––– ––––––– –––––––Taxable income £72,515 £67,515 £3,000 £2,000

–––––––– –––––––– ––––––– –––––––

Basic band extension: £33,300 + (£780 x 100/78)= £34,300 1

£1st 2,150 x 10% 215 0·5Next 32,150 x 22% 7,073 0·5

–––––––34,300

Next 33,215 x 40% 13,286 0·5Savings 3,000 x 40% 1,200 0·5Dividend 2,000 x 32·5% 650 0·5

–––––––Tax liability 22,424Dividend credit (£2,000 x 10%) (200) 0·5Bank interest credit (£3,000 x 20%) (600) 0·5PAYE (21,400) 0·5

––––––– –––Tax payable £224 11

––––––– ––––––––––

(c) Anita and Gregory – Tax refunds

Anita ££500 x 100/80 625Personal allowance (5,035)

––––––Taxable income Nil

––––––––––––Refund due (£625 x 20%) £125 1

––––––––––––

Anita can claim the refund because this is actual tax deducted at source by Anita’s bank. 0·5

Gregory ££360 x 100/90 400Personal allowance (5,035)

––––––Taxable income Nil

––––––––––––Refund due Nil 0·5

––––––––––––

Gregory cannot reclaim the dividend tax credit of £40 (£400 x 10%). This is because the tax credit on a dividend is a deemed credit and has not actually been deducted by the company, and therefore has not been paid by Gregory. 1

–––3

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Marks2 (a) (i) United plc – Capital gain 17 May 2006

FA85 poolShares Cost Indexed

cost£ £

May 1997 purchase 3,000 6,000 6,000 0·5Indexed to August 20040·194 x £6,000 1,164 0·5August 2004 purchase 5,000 18,000 18,000 0·5

–––––– –––––––– ––––––––8,000 24,000 25,164

Indexed to May 20060·042 x £25,164 1,057 0·5

–––––– –––––––– ––––––––8,000 24,000 26,221

May 2006 disposal (4,000) (12,000) (13,111) 1.0–––––– –––––––– ––––––––4,000 £12,000 £13,110

–––––– –––––––– –––––––––––––– –––––––– ––––––––

Gain £Proceeds 40,000Cost (12,000) 0·5

––––––––28,000

Indexation allowance (£13,111 – £12,000) (1,111) 0·5––––––––£26,889–––––––––––––––– –––

4–––

(ii) United plc – Capital allowances for the year ended 31 March 2007

FYA General Expensive Capitalpool car allowances

£ £ £ £Balance brought forward 126,000 0·5Purchases:Machine 40,000 0·5Car 24,000 0·5Disposals:Machine (6,000) 0·5

–––––––– –––––––––– ––––––––40,000 120,000 24,000

WDA – 25% (30,000) 30,000 1WDA – restricted (3,000) 3,000 1FYA – 50% (20,000) 20,000 1Transfer to pool (20,000) 20,000

–––––––– –––––––––– –––––––– ––––––––Balances carried forward Nil £110,000 £21,000

–––––––– –––––––––– –––––––––––––––– –––––––––– ––––––––Total capital allowances £53,000

–––––––––––––––– –––5

–––(Note the percentage of private use on the car is irrelevant)

(iii) United plc – Corporation tax for the year ended 31 March 2007

£ £Adjusted trade profit 256,000 0·5Capital allowances (part ii) (53,000) 203,000 0·5

–––––––––Property income (£9,000 + £3,000) 12,000 1Investment income (£1,600 – £600) 1,000 1Capital gain (part i) 26,889 0·5

–––––––––Profits chargeable to corporation tax (PCTCT) 242,889FII (£9,000 x 100/90) 10,000 1

–––––––––Profits £252,889

––––––––––––––––––

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MarksThe tax limits are divided by the number of associated companies – three (United plc, City Ltd and Rovers plc – but not Wanderers Ltd)

£1,500,000£500,000––––––––––

3

£300,000£100,000 1·5–––––––––

3

Therefore, United plc is a marginal rate company£

£242,889 x 30% 72,867 1

(£500,000 – £252,889) x £242,889

x 11/400 (6,527) 2––––––––––£252,889 ––––––––

–––£66,340 9–––––––– –––––––––––

(iv) The date of payment is 1 January 2008 (9 months and 1 day after the end of the accounting period) 1–––

(b) (i) & (ii) Athletic Ltd – Registration for value added tax (VAT)

£1 December 2007–29 February 2008 15,0001 March 2008–31 May 2008 21,000June 2008 14,000 (£42,000 x 1/3)July 2008 14,000 (£42,000 x 1/3)

––––––––£64,000 2––––––––––––––––

The £61,000 VAT threshold is exceeded at the end of July 2008.Athletic Ltd must notify HM Revenue and Customs (HMRC) within 30 days of the end of July 2008 i.e. by 30 August 2008. 1

–––3

–––

Athletic Ltd will then be compulsorily registered on the 1st day of the month following the month in which the threshold was exceeded (or an earlier date if requested) i.e. 1 September 2008. 1

–––

(iii) The normal length of a VAT return period is three calendar months. 1The return must be sent to HMRC by the end of the month following the end of the return period. 1

–––2

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Marks3 (a) Donald – Chargeable gains for the tax year 2006–07

Shares Shares Cost£

14 October 2000 4,000 6,00018 May 20041 for 2 rights at £2.50 2,000 5,000 2

––––––– –––––––––6,000 11,000

14 June 2006 disposal (4,000) (7,333) 1––––––– –––––––––

2,000 £3,667––––––– –––––––––––––––– –––––––––

Gain £Proceeds 18,000Cost (7,333)

–––––––––£10,667 1

––––––––––––––––––Taper relief 5 years = 85% 0·5£10,667 x 85% £9,067 0·5

––––––––––––––––––Cricket bat

ExemptChattel bought and sold for less than £6,000 1

HouseProceeds 340,000April 1998 indexed cost (161,600) 1July 2004 extension (36,000) 1

–––––––––£142,400––––––––––––––––––

Taper relief 8 years plus one bonus year = 9 years = 65% 1£142,400 x 65% £92,560 0·5

––––––––––––––––––(note: the August 1997 extension is reflected in the April 1998 indexed cost)

Total gains for 2006–07: (£9,067 + £92,560) £101,627 0·5–––––––––––––––––– –––

10–––

(b) (i) Caroline – Capital gains tax for the tax year 2006–07

Business Non Nonasset 1 business business

asset 1 asset 2£ £ £

Gain 40,000 3,000 2,000Current year loss (3,000) (1,000) 1Brought forward loss (2,000) (1,000) 1

–––––––– –––––– ––––––Net gains £38,000 nil nil

–––––––– –––––– ––––––Taper percentage 25% 85% 65% 1·5Chargeable gains 9,500 nil nil 0·5Annual exemption (8,800) 1

––––––––Taxable gain £700

––––––––––––––––

£Basic tax band 33,300Taxable income (33,000)

––––––––Balance remaining £300 1

––––––––

Capital gains tax payable:£

£300 x 20% 60 0·5£400 x 40% 160 0·5

––––– –––£220 7––––– ––––––––

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Marks(ii) The date of payment is 31 January 2008 1

–––

(c) (i) Bernadette – Chargeable gain for 2006–07

£Proceeds (market value) 45,000 1Cost (18,000) 0·5

––––––––27,000

Chargeable now (£26,000 – £18,000) (8,000) 1––––––––

Gift relief £19,000 0·5––––––––––––––––

Taper relief = 25% 0·5Chargeable gain:£8,000 x 25% £2,000 0·5

–––––––––––––––– –––4

–––

(ii) The base cost for Billy is:

£45,000 – £19,000 = £26,000 1–––––––––––––––– –––

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4 (a) (i) Bobby – Opening year assessments 2003–04 to 2006–07

Year 1 2003–04 Actual1 February 2004 – 5 April 20042/16 x £24,000 £3,000 1·5

––––––––––––––––

Year 2 2004–05 Actual6 April 2004 – 5 April 200512/16 x £24,000 £18,000 1·5

––––––––––––––––

Year 3 2005–06 12 months to accounting date1 June 2004 – 31 May 200512/16 x £24,000 £18,000 1

––––––––––––––––

Year 4 2006–07 Current year basisYear ended 31 May 2006 £36,000 1

–––––––––––––––– –––5

–––

(ii) Overlap profits£

2003–04 3,0002004–05 18,0002005–06 18,0002006–07 36,000

––––––––75,000 1

Actual profit in the periods ended 31 May 2006 (60,000)

––––––––Overlap profits £15,000 1

–––––––––––––––– –––2

–––

Note: Other methods of calculating and illustrating the calculation of the overlap profits are acceptable.

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Marks(b) Bobby – Industrial buildings allowance – period ended 31 May 2005

Calculated on:

Lower of cost or second-hand price: £70,000 1

Remaining tax life: 21 years 7 months (259 months) 1

WDA£70,000

x 12 = £3,243 per year1

–––––––259

IBA for period ended 31 May 2005: £3,243 x 16/12 = £4,324 1–––––––––––––– –––4

–––

(c) Tax AdvisersGlasgow

13 June 2007

Bobby Reference: xxx23 The AvenueGlasgow

Dear Sir

National Insurance Contributions (NIC)

Thank you for your letter dated 8 June in which you request details of your NIC obligations in respect of your new salesman.

There are various classes of NIC of which class 1 and class 1A relate to employees. The employee himself will suffer class 1 primary contributions and you, as the employer, will be liable to pay both class 1 secondary contributions on the employee’s cash earnings and class 1A contributions on any taxable non-cash benefits the employee receives; the car in this instance. 1·5

The class 1 contributions will be worked out monthly, and paid to HM Revenue and Customs (HMRC) on or before the 19th of the following month. Class 1A contributions will be calculated at the end of each tax year 2and paid to HMRC by 19 July following the end of the tax year.

The employee primary contributions each month will be:£

1st £420 nil£2,795 – £420 x 11% 261£3,000 – £2,795 x 1% 2

–––––£263 1·5––––––––––

Your secondary contributions each month will be:£

1st £420 nil£3,000 – £420 x 12·8% 330

–––––£330 1––––––––––

In addition your liability to class 1A contributions on the benefits will be £410 (£3,200 x 12·8%). 1

If you need any further assistance please do not hesitate to contact me at the above address.

Yours sincerely

An AdvisorPresentation 2

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Tuesday 10 June 2008





2



Supplementary Instructions




Tax Rates and Allowances


Income tax



Personal allowance


Company car benefit


Car fuel benefit


Authorised mileage allowances: Cars

Up to 10,000 miles 40pOver 10,000 miles 25p





6·25%

3 [P.T.O.



Capital allowances




For small businesses only: the rate of plant and machinery first-year allowance is increased to50% for the period from 1 April 2006 to 31 March 2008 (6 April 2006 and 5 April 2008for unincorporated businesses).


Corporation tax


Marginal relief


Value added tax



Individuals £9,200

4





% %1 50 1002 25 1003 25 954 25 905 25 856 25 807 25 758 25 709 25 6510 25 60





Class 1A 12·8




5 [P.T.O.




1 (a) Paul is aged 52 and has been married to Susan, who is 51, for the past twenty years. He works as a customerrelations manager for a large UK resident company. His annual salary is £42,000 and he has received bonusesof £5,000 and £6,000 on 1 May 2007 and 1 May 2008 respectively. These bonuses were paid in respect ofthe company’s years ending 31 March 2007 and 31 March 2008.

In addition Paul received the following benefits in the tax year 2007–08:

– The use of a company owned house for him and his family. The company purchased the house on 14 June2004 for £159,000. Paul first moved into the house on 2 October 2006 when it had a market value of£260,000. Paul has occupied the house throughout 2007–08 paying rent to the company of £400 permonth. The rateable value of the house is £3,000. The house is not job-related. Paul pays for all of thehousehold expenses.

– A payment of 45p per mile for the business use of Paul’s own car. Paul received this for a total of 12,000miles in the tax year 2007–08 of which 9,000 have been on business trips and 3,000 on travelling to andfrom work. Paul’s place of work is not temporary.

– Workplace parking. This was calculated as worth £6 per day for each of the 215 days that Paul attendedwork during the tax year 2007–08.

– Free private medical insurance. This had cost the company £800 for the tax year 2007–08, it would havecost Paul £960 if he had arranged the cover himself.

– The use of a company owned computer. Paul has been provided with a computer to use at home for bothbusiness and private usage. Paul estimated that the private usage amounted to 40% and the business usage60%. The computer was first provided in May 2006 when it had a market value of £2,400 and Paul hasused it throughout the whole of the tax year 2007-08.

Paul’s company deducted £9,280 income tax (PAYE) from Paul’s income during the tax year 2007–08.

Paul’s other income for the tax year 2007–08 was:

Bank interest £4,800Dividends from UK companies £1,800Building society interest £800

The bank interest is from an account held in joint names with his wife Susan and is the total amount due forboth Paul and Susan. The building society interest is from an Individual Savings Account (ISA). All three amountsshown are the cash amounts received or credited to the accounts.

Paul paid £156 (net) to a UK registered charity under the gift aid scheme and a fee of £380 to an HM Revenue& Customs (HMRC) approved relevant professional body, required for his position in the company. Both of thesepayments were made during December 2007.

Required:

Calculate the income tax payable by Paul for the tax year 2007–08. (19 marks)

(b) Charlie owns a house, which he rents out fully furnished. It is not rented out as furnished holidayaccommodation.

The house had been rented for £800 a month for the two years up to 31 December 2007. The same family hadbeen occupying the house during this period and all the rent had been paid with the exception of the last amountdue for December 2007. Despite all possible attempts to recover this month’s rent it still remains unpaid and itis doubtful that it will ever be collected.

From 1 January 2008 a new tenant occupied the property and the rent was increased to £880 per month. Therent due for January 2008 and February 2008 was paid on time but the rent for March 2008 was not paid until24 April 2008.

6



Charlie’s expenditure in respect of the house was:

– House contents insurance: £600 in January 2007 and £800 in January 2008. Both amounts were paidin advance for the year to come.

– Letting agent’s commission: 10% of the gross rents receivable (including those outstanding).

– Minor repairs: £250 in August 2007

– Water rates: £300 for the period 1 April 2007 to 31 March 2008.

– A new entrance porch: £1,500 in June 2007

Charlie always claims wear and tear allowance for the furniture.

Required:

Calculate the amount assessable on Charlie in respect of business property income for the tax year 2007–08. (8 marks)

(c) Paul wants to start making contributions to a pension plan. His employer has advised him that they have anHMRC registered occupational pension scheme that he can join. However, a friend has told him that both he andhis employer can contribute to a personal pension plan instead.

He has asked you, as his tax advisor, for information on the two forms of pension scheme. You have arranged ameeting with Paul to discuss the information he requires.

Required:

Write brief notes, to be used at a meeting with Paul, explaining the following points:

– The maximum contributions allowed per year.– The method(s) of him obtaining relief.– The tax effects, if any, of the company making contributions to the plans on his behalf.

Note: your answer should only cover the above points. You are not required to mention the rules on receivingbenefits on retirement.

(8 marks)

(35 marks)

7 [P.T.O.



2 (a) ACC Ltd is a UK registered company. During its eight-month accounting period from 1 May 2007 to 31 December 2007 the company had the following trading results:

Note £ £Operating profit 940,000Loan interest 1 20,000UK dividends 9,000 29,000

––––––––– –––––––––969,000

Expenses:Legal expenses 2 20,000Administration costs 3 92,000Loan interest 4 5,000Overdraft interest 8,000Depreciation 32,000Motoring expenses 5 28,700Wages 400,000Donations 6 7,000Staff pension contributions 7 30,000 (622,700)

––––––––– –––––––––Net profit £346,300

––––––––––––––––––

Notes:

(1) The loan interest income is in respect of 5% debentures purchased in 2005 as a long-term investment. Theamount shown includes an accrued figure of £2,000 for an amount still owed to the company at 31 December 2007.

(2) The legal expenses comprise:

Costs of defending the company’s title to a fixed asset £6,000Fine for breaking the Health and Safety at Work Act £10,000Legal fees for preparing staff contracts £4,000

(3) Included within the administration costs are:

Gifts of 300 Christmas food hampers to customers £11,500Entertainment of staff £2,600

(4) The loan interest paid is in respect of a loan of £100,000 borrowed to finance the purchase of fixed plantand machinery used in ACC Ltd’s trade. The loan was obtained in 2004. The total amount due for the periodended 31 December 2007 is as shown in the accounts.

(5) Motoring expenses include:

Parking fines incurred by employees on company business £300Director’s car expenses of which 40% is in respect of private journeys £2,400Lease payments for the car used by the commercial managerfor the eight-month period. £6,000(The list price of the car, which is not low emission, is £20,000).

(6) The donations comprise: £2,000 to a national charity; and £5,000 to the local Chamber of Commerce.

(7) The pension contributions are in respect of contributions to a HM Revenue & Customs (HMRC) registeredoccupational pension plan for the company’s employees.

(8) The tax written down values of the general plant and machinery pool and an expensive car as at 1 May2007 were £290,000 and £16,000 respectively. The car is the car (in note 5) used by the director.

8



The following purchases and disposals of capital items were made by the company during the period ended 31 December 2007:

Purchases:

31 May 2007 – New machinery costing £35,000.17 August 2007 – A new computer costing £6,000 (to be treated as a short life asset).

Disposals:

12 June 2007 – Machinery for £14,000 (original cost £12,000).

In addition to the above, the expensive car, which had originally cost £19,000, was traded in on 31 December2007 for £8,000 against the cost of a new car, for which a further £3,000 was paid by the company. The newcar is not a low emission car and will not be used for private journeys.

ACC Ltd qualifies as a small company for capital allowances purposes.

Required:

(i) Calculate the maximum capital allowances claimable by ACC Ltd for the eight-month period ended 31 December 2007. (8 marks)

(ii) Calculate ACC Ltd’s adjusted trading profits, after capital allowances, for the eight-month period ended31 December 2007. (11 marks)

(b) BDD Ltd is a UK trading company, which has always paid tax at the full rate. For its accounting year ended 31 March 2008 BDD Ltd had profits chargeable to corporation tax (PCTCT) amounting to £1,800,000. Thisamount was identical to the figure of profits forecast at the beginning of April 2007.

Required:

Calculate the amount of corporation tax due by BDD Ltd and state the due dates of payment of the tax paidin respect of the year ended 31 March 2008. (5 marks)

(24 marks)

9 [P.T.O.



3 (a) Alberto, a UK resident, made the following disposals of capital assets during the tax year 2007–08:

14 May 2007: A statuette of a French musketeer was sold for £18,000. The statuette had been part of a set ofthree, which had been purchased on 10 January 2005 for a total cost of £32,000. Alberto incurred sellingexpenses of £1,000. The market value of the remaining two statuettes on 14 May 2007 was £45,000.

19 July 2007: A painting was sold for £3,000. The painting had been purchased in June 2005, when it wasmistakenly thought to be a rare portrait, for £9,000.

22 January 2008: 6,000 shares in EFG Ltd were sold for £38,000. Alberto had purchased 4,000 shares inSeptember 2002 for £5,600. EFG Ltd had made a 1 for 1 bonus issue to its shareholders in May 2004. Theshares in EFG Ltd should be regarded as business assets for taper relief purposes.

Alberto had unused capital losses of £1,000 brought forward from the tax year 2006–07.

Alberto’s taxable income (after personal allowances) for the tax year 2007–08 was £33,900.

Required:

(i) Calculate the capital gains/losses (before taper relief) arising on each of the above disposals;(7 marks)

(ii) Calculate the capital gains tax payable by Alberto for the tax year 2007–08 and state the due date ofpayment. (8 marks)

(b) Sandra has run a small manufacturing business for several years.

On 16 August 2007 she sold a factory, which had always been used in her business, for £220,000. It hadoriginally been purchased in May 2002 for £140,000.

On 10 June 2007 Sandra had invested £210,000 in fixed plant and machinery, which was to be used in herbusiness.

Sandra wishes to claim all available reliefs.

Required:

(i) Calculate Sandra’s chargeable gain (after taper relief) on the disposal of the factory; (3 marks)

(ii) State when any deferred gain will become chargeable. (3 marks)

(21 marks)

10



4 (a) Sean and Lauren have been in partnership for several years making up accounts to 31 December every year.

On 1 January 2007 Helena was admitted as a full partner.

Prior to 1 January 2007 profits and losses had always been shared equally but from 1 January 2007 the profitsharing ratio was changed to 2:2:1 between Sean, Lauren and Helena respectively.

No salaries or interest on capital are paid.

Recent adjusted trading profits have been:

Year to 31 December 2006 £18,000Year to 31 December 2007 £25,000

Required:

For each partner calculate the trading profit assessable to tax for each of the tax years 2006–07 and 2007–08, clearly identifying any overlap profits. (6 marks)

(b) Nicole has been trading as a sole trader for several years. For the accounting year to 31 August 2007 she madean adjusted trading loss, after capital allowances, of £18,000.

Prior to this year Nicole has always made a profit and she expects to make profits in all future years.

In addition to her income as a sole trader, Nicole receives investment income of approximately £3,000 everyyear.

Required:

In respect of Nicole’s loss for the year ended 31 August 2007, state the tax years in which the loss can beused and the type(s) of income it can be used against in each case.

Note: you are not required to calculate the effect of any use of the loss or suggest the best alternative.(7 marks)

(c) Yee-ling is a sole trader and has recently registered for value added tax (VAT).

Yee-ling understands that it is important to use the correct deemed date of sale i.e. the tax point. Recently shesold stock for £3,000. A £400 payment in advance had been received on 28 May 2007 and the stock wasdelivered on 24 June 2007. Yee-ling sent an invoice for the balance due of £2,600 on 2 July 2007 and receivedthis amount from the customer on 1 August 2007.

Yee-ling is not in the cash accounting scheme.

Required:

(i) State how the tax point (time of supply) is determined for the purposes of VAT; (3 marks)

(ii) State, giving reasons, the tax point(s) in respect of the above transaction made by Yee-ling; (2 marks)

(iii) Give two reasons why it is important to determine the right tax point. (2 marks)

(20 marks)


11



Answers



ACCA Certified Accounting Technician Examination – Paper T9 (UK) June 2008 AnswersPreparing Taxation Computations (United Kingdom) and Marking Scheme

Marks1 (a) Paul – Income tax payable for the tax year 2007–08

Total Non-savings Savings Dividendsincome income

£ £ £ £Employment income (working) 52,862 52,862 10Bank interest (£4,800 x100/80) x 50% 3,000 3,000 1·5Dividends (£1,800 x 100/90) 2,000 2,000 1ISA interest – exempt 1

–––––––– –––––––– ––––––– –––––––Total income 57,862 52,862 3,000 2,000Personal allowance (5,225) (5,225) 0·5

–––––––– –––––––– ––––––– –––––––Taxable income £52,637 £47,637 £3,000 £2,000

–––––––– –––––––– ––––––– ––––––––––––––– –––––––– ––––––– –––––––

Extension of basic rate threshold £34,600 + (£156 x 100/78) = £34,800 1

Tax payable:£ £ £

1st 2,230 x 10% 223 0·5Next 32,570 x 22% 7,165 0·5

–––––––34,800

Next 12,837 x 40% 5,135 0·5–––––––47,637

Savings 3,000 x 40% 1,200 0·5Dividends 2,000 x 32·5% 650 0·5

–––––––Tax liability 14,373less tax deducted at source:Dividend credit – £2,000 x 10% 200 0·5Bank interest credit – £3,000 x 20% 600 0·5PAYE 9,280 (10,080) 0·5

––––––– ––––––– –––Tax payable £4,293 19

––––––– ––––––––––

Working

Employment income£ £

Salary 42,000 0·5Bonus – receipts basis 5,000 1Accommodation

Rateable value 3,000 0·5Additional(£159,000 – £75,000) x 6·25% 5,250 1·5

–––––––8,250

Contribution – £400 x 12 (4,800) 3,450 1–––––––

(Note: the market value in 2006 is not relevant)Use of own car

Amount received – 12,000 x 45p 5,400 0·5Amount allowed – 9,000 x 40p (3,600) 1,800 1

–––––––(Note: travel to and from work is classed as private motoring)

Workplace parking exempt benefit 1Medical insurance cost to the company 800 1Computer

Market value £2,400 x 20% 480 1Business proportion – 60% (288)

–––––––Benefit 192

––––––––53,242

Professional fees (380) 1–––––––– –––

Employment income £52,862 10–––––––– –––––––––––

15



Marks(b) Charlie – Business property income for the tax year 2007–08

Rent receivable: £ £1 April 2007 – 31 December 2007 £800 x 9 7,200 11 January 2008 – 31 March 2008 £880 x 3 2,640 9,840 1·5

––––––Expenditure:

Bad debt (December 2007) 800 1Contents insurance (£600 x 9/12) + (£800 x 3/12) 650 1Estate agents commission (£9,840 x 10%) 984 0·5Repairs 250 0·5Water rates 300 0·5Porch – expenditure not allowed – capital 0·5Wear and tear allowance (£9,040 – £300) x 10% * 874 (3,858) 1·5

–––––– –––––––– –––Business property income £5,982 8

–––––––– –––––––––––

* The 10% wear and tear allowance is calculated on the net rent received but marks will be awarded where the amount receivable is used.

(c) Meeting notes

(1) The maximum contribution is the higher of £3,600 or 100% of earned income, subject to an annual 3allowance of £225,000.

(2) Method of relief:If an occupational scheme – the actual payments are deducted from employment income. 1If a personal plan – the amount is paid net of tax at 22%. Higher rate relief (if applicable) is given by extending the basic rate band by the amount paid grossed up by 100/78. 2

(3) Company contributions are exempt benefits. 1They are, however, deductible for the purposes of corporation tax. 1

–––8

–––35––––––

2 (a) (i) ACC Ltd – Capital allowances for the eight-month period ended 31 December 2007

FYA General Expensive Short-life CAspool car asset

£ £ £ £ £Balances brought forward 290,000 16,000Purchases:Machine – 31 May 2007 35,000 0·5Computer – 17 August 2007 6,000 0·5Car – 31 December 2007 11,000 1Disposals:Machine – 12 June 2007 (12,000) 1Car – 31 December 2007 (8,000) 0·5

––––––– ––––––––– ––––––– –––––––35,000 289,000 8,000 6,000

Balancing allowance (8,000) 8,000 1WDA – 25% x 8/12 (48,167) 48,167 1·5FYA – 50% (17,500) (3,000) 20,500 2Transfer (17,500) 17,500

––––––– ––––––––– ––––––– ––––––– –––––––– –––Balances carried forward nil £258,333 nil £3,000 8

––––––– ––––––––– ––––––– ––––––– –––––––––– ––––––––– ––––––– –––––––Total capital allowances £76,667

––––––––––––––––

(Note: The private use of the car by the director does not affect the capital allowances claim).

16



Marks(ii) ACC Ltd – Adjusted trading profits for the eight-month period ended 31 December 2007

£ £Net profit per accounts 346,300 0·5Deduct:Loan interest – non trading income 20,000 0·5Dividends 9,000 (29,000) 0·5

––––––– –––––––––317,300

Add back:Health and safety fine 10,000 0·5Food hampers 11,500 0·5Depreciation 32,000 0·5Lease payments (working) 1,200 2Donation to charity 2,000 56,700 0·5

––––––– –––––––––374,000

Capital allowances (part (i)) (76,667) 0·5–––––––––

Adjusted trading profit £297,333––––––––––––––––––

Items unadjusted:Overdraft interestWagesCost of defending title to a fixed assetStaff contracts legal feesEntertainment of staffLoan interestParking finesPrivate car usageDonation to Chambers of CommercePension contributions 5

–––11

–––

WorkingCar lease:

Payments 6,000£6,000 x £12,000 + £20,000 (4,800)

––––––––––––––––––– –––––––2 x £20,000

Add back £1,200––––––––––––––

(b) BDD Ltd – Corporation tax payments for the year ended 31 March 2008

Tax payable: £1,800,000 x 30% £540,000 1––––––––––––––––––

Quarterly payments: £540,000 £135,000––––––––– ––––––––––––––––––

4

Payable on: £14 October 2007 135,000 114 January 2008 135,000 114 April 2008 135,000 114 July 2008 135,000 1

––––––––– –––£540,000 5––––––––– ––––––––––––

24––––––

17



Marks3 (a) (i) Alberto – Capital gains for the tax year 2007–08

French musketeer £Proceeds 18,000Expenses (1,000) 1

––––––––17,000

£32,000 x18,000

–––––––––––––––18,000 + 45,000 (9,143) 1·5

––––––––£7,857

––––––––––––––––

Painting £Deemed proceeds 6,000 1Cost (9,000) 0·5

––––––––£(3,000)

––––––––––––––––

Shares £Purchase – September 2002 4,000 5,600 0·5Bonus issue – 1 for 1 4,000 1

–––––––– ––––––––8,000 5,600

Disposal (6,000) (4,200) 1–––––––– ––––––––

2,000 £1,400–––––––– –––––––––––––––– ––––––––

Proceeds 38,000Cost (4,200)

––––––––£33,800 0·5–––––––– –––––––––––

7–––

(ii) Alberto – Capital gains tax for the tax year 2007–08

Taper: Musketeer – non-business asset held for < three years – 100% chargeable 0·5Shares – business asset held for > two years – 25% chargeable 0·5

Capital losses should be used against the gain with the largest chargeable percentage i.e. the musketeer.£

Musketeer: £7,857 – £3,000 – £1,000 = £3,857 x 100% 3,857 2·5Shares: £33,800 x 25% 8,450 0·5

–––––––12,307

Annual exemption (9,200) 1–––––––

Taxable gains £3,107––––––––––––––

Tax payable: £Basic band 34,600Used for income tax (33,900)

––––––––£700 1

––––––––––––––––

1st £700 x 20% 140 0·5Next £2,407 x 40% 963 0·5

––––––––£1,103

––––––––––––––––

Due date of payment: 31 January 2009 1–––

8–––

18



Marks(b) (i) Sandra – Chargeable gain

£Proceeds 220,000Cost (140,000)

–––––––––80,000 1

Proceeds not re-invested (10,000) 1–––––––––

Gain heldover £70,000––––––––––––––––––

Taper relief – business asset held for > two years – 25% chargeable 0·5

Chargeable gain: £10,000 x 25% = £2,500 0·5––––––– –––––––––––

3––––

(ii) Sandra – Heldover gain

The gain will be held over until the earliest of:

the sale of the plant and machinery; 1the plant and machinery ceasing to be used as a business asset; and 1the tenth anniversary of the purchase date of the plant and machinery. 1

–––3

–––21––––––

4 (a) Sean, Lauren and Helena – Trading profit assessments

Total Sean Lauren Helena£ £ £ £

Year to 31 December 2006: £18,000 £9,000 £9,000 1–––––––– –––––––– –––––––––––––––– –––––––– ––––––––

Year to 31 December 2007: £25,000 £10,000 £10,000 £5,000 1–––––––– –––––––– –––––––– ––––––––––––––– –––––––– –––––––– –––––––

Sean and Lauren:

2006–07 Current year basis December 2006 £9,000 0·5––––––––––––––––

2007–08 Current year basis December 2007 £10,000 0·5––––––––––––––––

Helena:

2006–07 Actual basis1 January 2007 – 5 April 20073/12 x £5,000 £1,250 1

––––––––––––––––2007–08 Current year basis December 2007 £5,000 1

––––––––––––––––Overlap profit: £1,250 1

–––––––– –––––––––––6

–––

(b) Nicole – Use of trading loss

The loss in August 2007 occurs in the tax year 2007–08

Alternative uses are therefore:

Current and prior year 2007–08 1(Section 64 Income Tax Act 2007) 2006–07 1

Either or both years in, any order 1·5Against total income, before personal allowances 1·5

Carry forward 2008–09 onwards 1(Section 83 Income Tax Act 2007) Against the first available trading profits from the same trade only 2

–––maximum 7

–––

(Note: Candidates are not required to give section numbers and they are shown here for completeness only).

19



Marks(c) (i) Tax point (time of supply) for VAT

The basic tax point is the date the goods are dispatched or otherwise made available to the customer. 1However:– If the invoice is issued within 14 days after the goods have been dispatched then that date

replaces the dispatch date. 1– If an invoice is issued or payment is received before the goods are dispatched then the earliest

of these dates replaces the dispatch date. 1–––

3–––

(ii) Yee-ling – Tax point

The tax points for the transaction are therefore:

For the deposit of £400: 28 May 2007 (cash receipt) 1For the balance of £2,600: 2 July 2007 (14 day rule) 1

–––2

–––

(iii) Importance of determining the correct tax point

Any two of the following are acceptable:

To calculate the turnover for initial registration.To include the sale in the correct VAT return.To identify the correct rate of VAT (if there is a change). To identify the correct category of VAT (zero rate, reduced rate, standard rate or exempt – if there is a change). 2

–––20––––––

20










Pape

r T9

(U

K)


Tuesday 9 December 2008




SUPPLEMENTARY INSTRUCTIONS




TAX RATES AND ALLOWANCES


Income tax



Personal allowance


Company car benefit


Car fuel benefit


Authorised mileage allowances: cars

Up to 10,000 miles 40pOver 10,000 miles 25p





6·25%

2



Capital allowances


Writing-down allowance 25First-year allowance – plant and machinery 40


For small businesses only: the rate of plant and machinery first-year allowance is increased to50% for the period from 1 April 2006 to 31 March 2008 (6 April 2006 and 5 April 2008for unincorporated businesses).

Industrial buildings Writing-down allowance 4

Corporation tax


Marginal relief


Value added tax (VAT)



Individuals £9,200

3 [P.T.O.





% %1 50 1002 25 1003 25 954 25 905 25 856 25 807 25 758 25 709 25 6510 25 60





Class 1A 12·8



Where weekly or monthly calculations are required the Class 1 limits shown above should bedivided by 52 (weekly) or 12 (monthly) as applicable.

4




1 (a) Peppy has worked in the London office of Pepster Ltd for the last ten years earning over £45,000 per year. On1 August 2007 he was transferred to Pepster Ltd’s Newcastle office, which is nearly 300 miles away. As a resultPeppy moved house to the Newcastle area. During the tax year 2007–08 Peppy received the following benefitsfrom Pepster Ltd:

– A 2000cc BMW car, which has a recommended list price of £28,000. The car has a CO2 emission rate of198 grams per kilometre and is petrol driven. The car was first made available to Peppy on 1 July 2007and is used for both business and private purposes. Pepster Ltd paid for all the running costs of the car,which amounted to £2,400 in the tax year 2007–08. Peppy paid £6,000 towards the cost of the car and£40 per month for the private use of the car.

– A computer was provided throughout the whole of the tax year 2007–08. The computer is used for bothprivate and business purposes. The private use is estimated to be 40% of the total usage. Pepster Ltd paid£4,000 for the computer when it was first provided to Peppy in 2006–07.

– To help with Peppy’s move to Newcastle, Pepster Ltd paid Peppy £10,000 in July 2007 towards hisrelocation costs.

– Nursery vouchers for an approved carer to the value of £70 per week were given to Peppy towards the costof nursery schooling for Peppy’s two young children. The vouchers were given for 40 weeks during the taxyear 2007–08. All other employees of Pepster Ltd are entitled to the same amount per week.

Required:

Calculate, for the purposes of income tax, the total value of the benefits provided to Peppy in the tax year2007–08. (10 marks)

(b) Peppy’s wife Coral also works for Pepster Ltd and has provided you with the following information regarding herincome and outgoings for the tax year 2007–08:

Income

– A gross salary of £38,000.– A bonus of £6,000 received in May 2007.– Benefits with a taxable value for income tax purposes of £2,500.– Dividends of £900 received from UK companies in August 2007.– Bank interest of £400 credited to her UK bank account in December 2007.– Building society interest of £360 credited to her individual savings account (ISA) in March 2008.– A prize of £2,400 from gambling on the national lottery.– Rental income of £4,800. This is the total taxable amount due for the tax year 2007–08 from a house

owned jointly with her husband.

Expenditure

– A total amount of £120 paid to a UK charity under an approved give as you earn (GAYE) scheme,administered by Pepster Ltd.

– Personal pension contributions amounting to £3,900 (net) paid to an HM Revenue & Customs (HMRC)registered pension provider.

– Professional subscriptions of £180 to an HMRC approved professional body relevant to Coral’s employment.

Tax, amounting to £8,230, was deducted from Coral’s employment income under PAYE for the tax year2007–08.

Required:

Calculate the income tax payable by Coral for the tax year 2007–08. (12 marks)

5 [P.T.O.



(c) Coral is about to complete her 2007–08 tax return. She intends to submit a paper return and does not wish tosubmit the return online.

Required:

(i) State which form gives details of Coral’s total taxable earnings and tax deducted for the tax year2007–08, and by which date she must receive a copy of this form from Pepster Ltd; (2 marks)

(ii) State which form gives details of the cash equivalents of Coral’s benefits received for the tax year2007–08, and by which date she must receive a copy of this form from Pepster Ltd; (2 marks)

(iii) State the latest date by which Coral must submit her tax return for the tax year 2007–08 to HM Revenue& Customs (HMRC) to avoid having to calculate the tax herself. (1 mark)

(d) Peppy and Coral have recently purchased another property and have decided to rent it out to holidaymakers.

Required:

State the conditions that must be met for the property to be treated as a furnished holiday letting.

Note: you are not required to state the tax advantages of the property qualifying as a holiday letting.(6 marks)

(33 marks)

6



2 Taps Ltd is a UK registered company with no associated companies. For its twelve-month accounting period ended31 March 2008 Taps Ltd has provided you with the following information:

– Trading profit of £1,000,000, fully adjusted for tax purposes but before capital allowances.

– Non-trading interest of £20,000 was received from another UK company for the year ended 31 March 2008. Inaddition, a further £2,000 owed at 31 March 2008 was received in May 2008.

– Bank interest of £1,800 was paid to a UK bank for the year ended 31 March 2008. The interest was in respectof a loan taken for non-trade purposes. A further £300 due at 31 March 2008 has still not been paid.

– An unwanted office block was sold for £495,000 on 1 December 2007. Taps Ltd had purchased the office blockfor £192,000 in September 1996. The office block was extended at a cost of £71,000 in May 1999. Solicitors’fees of £18,000 were incurred on disposal.

– A gift aid payment of £4,000 was made in September 2007.

– UK dividends, amounting to £63,000, were received on 14 November 2007.

– On 1 April 2007 the balances on the general pool and a short life asset for capital allowance purposes were£284,000 and £10,600 respectively.

– The following items of plant and machinery were purchased and sold in the year to 31 March 2008:

Plant was purchased for £80,000 on 1 May 2007. The plant is not energy saving.A car for the director’s use was purchased for £30,000 on 1 December 2007. The car, which is not lowemission, is used 30% for private purposes.The short life asset, which had cost £19,000 in August 2006, was sold for £8,000 on 2 January 2008.Plant, which had cost £63,000 in May 2006, was sold for £60,000 on 2 February 2008.

Taps Ltd is classed as a small business for the purposes of capital allowances.

– Taps Ltd had a trading loss of £180,000 brought forward on 1 April 2007.

Required:

(a) Calculate the capital gain on the disposal of the office block in December 2007.

Note: indexation factors are:September 1996 to December 2007: 0·359May 1999 to December 2007: 0·262

(4 marks)

(b) Calculate the maximum capital allowances that Taps Ltd can claim for the year ended 31 March 2008.(7 marks)

(c) Calculate the corporation tax payable by Taps Ltd for the year ended 31 March 2008, assuming that themaximum capital allowances are claimed. (9 marks)

(d) State the dates by which Taps Ltd should pay its corporation tax and submit its corporation tax return for theyear ended 31 March 2008. (2 marks)

(22 marks)

7 [P.T.O.



3 (a) Jenny made the following disposals of assets in the tax year 2007–08:

15 May 2007: A vintage car was sold for £44,000. This had been purchased for £28,000 in August 2002.

17 July 2007: A field was sold for £210,000. This had been purchased in September 1996 for £99,350 andhad an indexed cost of £105,000 on 6 April 1998.

14 September 2007: A painting was sold for £8,200 (net of expenses of £200). This had cost £3,100 plus£300 expenses in August 2003.

19 January 2008: A building was sold for £140,000. This had cost £160,000 in May 2002.

None of the assets are business assets.

Jenny has taxable income for income tax purposes of £50,000 for the tax year 2007–08.

Required:

Calculate Jenny’s capital gains tax payable for the tax year 2007–08. (11 marks)

(b) Lynette purchased a house on 1 January 1984 and immediately occupied it as her main residence. She hasrecently written to you explaining that she sold the house on 31 December 2007 and is concerned that theremay be a capital gain on its disposal, as she has only lived in the house for ten of the twenty-four years that shehas owned it.

In her letter Lynette informed you that since 1984 her pattern of occupation and absence has been as follows:

1 January 1984 to 31 October 1989 Occupied the house.1 November 1989 to 28 February 1996 Employed overseas and rented out her house.1 March 1996 to 30 September 1997 Occupied the house.1 October 1997 to 31 December 2002 Employed elsewhere in the UK and left her house empty1 January 2003 to 31 July 2005 Occupied the house1 August 2005 to 31 December 2007 Lived with her mother and left her own house empty.

Lynette did not have any other main residence during the twenty-four year period from 1 January 1984 to 31 December 2007.

Required:

Write a letter to Lynette, using fictitious addresses, explaining with reasons, why there is or is not achargeable gain on the disposal of the house.

Note: up to 2 marks may be given for the presentation of the letter. (10 marks)

(21 marks)

8



4 (a) Susan has been a sole trader for the last ten years, selling bathroom accessories. Susan’s most recent tradingresults for the year ended 31 December 2007 are as follows:

Note £ £Gross profit 84,000Expenses:Wages 1 38,000Shop rent 3,000Electricity 2 4,400Business rates 2,200Depreciation 1,000Car expenses 3 1,800Bad debt written off 200Parking fine 4 400Legal fees 5 300Donations to local trade association 100 (51,400)

––––––– ––––––––Net profit £32,600

––––––––––––––––

Notes:

1. Included in the wages figure of £38,000 is an amount of £24,000 in respect of Susan’s drawings and£2,000 in wages for her son, Mike, who works part time in the shop. All other employees receive the samehourly rate of pay as Susan’s son.

2. The electricity cost relates to the whole building. Susan lives in the flat above the shop and 40% of theelectricity relates to the shop and 60% to the flat above.

3. Susan’s car is used 30% for business purposes and 70% for private purposes.

4. The parking fine was issued to Susan whilst she was on a business trip.

5. The legal fees comprise:

Expenses relating to the renewal of the ten-year lease of the shop £250Personal capital gains tax advice £50

6. Capital allowances of £800 have been claimed by Susan for the year ended 31 December 2007.

7. Susan takes stock from the shop for her own use. During the year ended 31 December 2007 the stock takenhad a cost of £800 and a normal selling price of £1,250. No adjustment for the withdrawal of this stockhas been made in the books of account.

Required:

Calculate Susan’s adjusted trading profit for the year ended 31 December 2007. (7 marks)

(b) Graham is also a sole trader. For his accounting year ended 31 March 2008 he made tax adjusted profits of£42,000.

Required:

Calculate the total national insurance contributions (NIC) payable by Graham for the tax year 2007–08 andstate by when each of the amounts calculated should be paid. (6 marks)

9 [P.T.O.



(c) Fitz has decided to retire and travel the world. He has been in business as a sole trader for many years makingup accounts to 30 November each year. He ceased business on 31 January 2008. His tax adjusted profits havebeen:

Year to 30 November 2006 £18,000Year to 30 November 2007 £20,000Period to 31 January 2008 £3,000

Fitz has £1,000 unused overlap profits brought forward from the opening years of his business.

Required:

From the information given above calculate Fitz’s assessable trading profits for the tax years 2006–07 and2007–08, clearly stating, for each tax year the basis period that applies. (4 marks)

(d) Emma is also a sole trader and is registered for value added tax (VAT). In the quarter ended 31 March 2008Emma had the following transactions:

Sales (exclusive of VAT where applicable)Standard rated £450,000Zero rated £20,000

Purchases of stock (all standard rated and exclusive of VAT) £180,000

Expenses (inclusive of VAT where applicable)Wages £120,000Electricity £40,000Motoring expenses (all business) £15,000

A discount of 4%, on all sales is offered to customers if invoices are settled within 30 days. Only 50% of allinvoices are paid within this time.

Debts of £1,200 and £900 (exclusive of VAT), which were due on 1 May 2007 and 13 December 2007respectively, were written off by Emma in March 2008.

Required:

Calculate the value added tax (VAT) payable or reclaimable by Emma for the quarter ended 31 March 2008.(7 marks)

(24 marks)


10



Answers



ACCA Certified Accounting Technician Examination – Paper T9 (UK) December 2008 AnswersPreparing Taxation Computations (United Kingdom) and Marking Scheme

Marks1 (a) Peppy – Benefits 2007–08

CarCO2 emissions 198Base figure (140) 0·5

–––––––58

–––––––Divided by 5 and rounded down 11 1Starting percentage 15 0·5

–––––––Final percentage 26

–––––––

List price – capital contribution£28,000 – £5,000 (maximum) £23,000 1

Benefit ££23,000 x 26% x 9/12 4,485 1Contribution £40 x 9 (360) 1

–––––––£4,125––––––––––––––

Fuel£14,400 x 26% x 9/12 £2,808 1·5

––––––––––––––

Computer£4,000 x 20% £800 1Business proportion – 60% (480)

–––––––Benefit £320

––––––––––––––

Relocation expenses £Amount received 10,000Tax free amount (8,000) 1

–––––––£2,000––––––––––––––

Nursery vouchers £Amount received – £70 x 40 2,800Tax free amount – £55 x 40 (2,200) 1

–––––––£600

––––––––––––––

Total benefits: (£4,125 + £2,808 + £320 + £2,000 + £600) £9,853 0·5––––––– –––––––––––

10––––

13



Marks(b) Coral – Income tax payable 2007–08

Total Non-savings Savings Dividendincome

£ £ £ £ £Salary 38,000 0·5Bonus 6,000 0·5Benefits 2,500 0·5

–––––––46,500

GAYE (120) 0·5Professional subscription (180) 0·5

–––––––Employment income 46,200 46,200Bank interest £400 x 100/80 500 500 1Dividend £900 x 100/90 1,000 1,000 1Rent £4,800/2 2,400 2,400 1ISA interest – exempt 0·5Lottery win – exempt 0·5

–––––––– ––––––––– ––––– –––––––Net income 50,100 48,600 500 1,000Personal allowance (5,225) (5,225) 0·5

–––––––– ––––––––– ––––– –––––––Taxable income £44,875 £43,375 £500 £1,000

–––––––– ––––––––– ––––– ––––––––––––––– ––––––––– ––––– –––––––

Extension of the basic rate band: £34,600 + (£3,900 x 100/78) = £39,600 1

Tax payable: £ £Non-savings income1st 2,230 x 10% 223 0·5Next 37,370 x 22% 8,221 0·5

––––––––39,600

Next 3,775 x 40% 1,510 0·5––––––––

43,375Savings income 500 x 40% 200 0·5Dividend income 1,000 x 32·5% 325 0·5

–––––––– –––––––£44,875––––––––––––––––

Tax liability 10,479Dividend credit £1,000 x 10% (100) 0·5Bank interest credit £500 x 20% (100) 0·5PAYE (8,230) 0·5

––––––– ––––Tax payable £2,049 12

––––––– –––––––––––

(c) Coral – Tax forms

(i) P60 – 31 May 2008 2

(ii) P11D – 6 July 2008 2

(iii) 31 October 2008 1––––

5––––

(d) Peppy and Coral – Furnished holiday letting

The conditions are:

The property must be let furnished on a commercial basis with a view to the realisation of profit. 1During the relevant period the property must be available for letting for at least 140 days. 1During the relevant period the property must actually be let for at least 70 days. 1During the relevant period, the same tenant must not normally occupy the property for more than a continuous period of 31 days. However, tenants may occupy a property for longer than 31 days provided that the total of these periods do not exceed 155 days in any relevant period. 2

The relevant period is normally the tax year but will be the first 12 months of letting when the property is first let. 1

––––6

––––33

––––

14



Marks2 (a) Taps Ltd – Capital gain December 2007

£Net proceeds (£495,000 – £18,000) 477,000 1Cost (192,000) 0·5Extension (71,000) 0·5

–––––––––214,000

Indexation allowance£192,000 x 0·359 (68,928) 1£71,000 x 0·262 (18,602) 1

––––––––– ––––£126,470 4––––––––– –––––––––––––

(b) Taps Ltd – Capital allowances for the year ended 31 March 2008

FYA General Short life Expensive Capitalpool asset car allowances

£ £ £ £ £Balances brought forward 284,000 10,600Purchases:Plant 80,000 0·5Car 30,000 0·5Disposals:Short life asset (8,000) 1Plant (60,000) 1

––––––– ––––––––– ––––––– ––––––––80,000 224,000 2,600 30,000

Balancing allowance (2,600) 2,600 1WDA at 25% (56,000) (3,000) 59,000 2FYA at 50% (40,000) 40,000 1Transfer (40,000) 40,000

––––––– ––––––––– ––––––– –––––––– ––––––––– ––––Balances carried forward £208,000 nil £27,000 7

––––––––– ––––––– –––––––– ––––––––––––– ––––––– ––––––––Capital allowances £101,600

––––––––––––––––––

(c) Taps Ltd – Corporation tax for the year ended 31 March 2008

£ £Trading profit 1,000,000Capital allowances (part b) (101,600) 898,400 1

––––––––––Trading loss brought forward (180,000) 1

–––––––––718,400

Non-trade interestReceivable (£20,000 + £2,000) 22,000 1Payable (£1,800 + £300) (2,100) 19,900 1

––––––––––Gains (part a) 126,470 0·5

–––––––––864,770

Gift aid (4,000) 0·5–––––––––

Profits chargeable to corporation tax (PCTCT) 860,770FII (£63,000 x 100/90) 70,000 1

–––––––––Profits £930,770

––––––––––––––––––

££860,770 x 30% 258,231 11/40(£1,500,000 – £930,770) x £860,770 (13,161) 2

–––––––––– –––––––––£930,770

––––Tax payable £245,070 9

––––––––– –––––––––––––

15



Marks(d) The corporation tax is payable nine months and one day after the end of the chargeable accounting

period i.e. 1 January 2009. 1

The corporation tax return is due 12 months after the end of the chargeable accounting period i.e. 31 March 2009. 1

––––2

––––22

––––

3 (a) Jenny – Capital gains tax for the tax year 2007–08

Car Exempt 1

Field £Proceeds 210,000Indexed cost (105,000)

–––––––––£105,000 1––––––––––––––––––

Taper relief:9 years + 1 bonus = 10 years = 60% 1

PaintingNet proceeds 8,200Cost (3,400)

–––––––––£4,800 1

––––––––––––––––––

Restricted to:(Gross proceeds – £6,000) x 5/3

(£8,400 – £6,000) x 5/3 £4,000 1·5––––––––––––––––––

Taper relief:Four years = 90% 0·5

Building:Proceeds 140,000Cost (160,000)

–––––––––£(20,000) 1

––––––––––––––––––

The loss must be used in the most beneficial manner i.e. against the gain with the highest chargeable percentage.

£Painting £4,000 – £4,000 (1st part of loss) Nil 1Field £105,000 – £16,000 (balance of loss) x 60% 53,400 1·5

––––––––Chargeable gains 53,400Less annual exemption (9,200) 0·5

––––––––Taxable gains £44,200

––––––––––––––––

Capital gains tax payable: £44,200 x 40% £17,680 1–––––––– ––––––––––––

11––––

16



Marks(b) Tax Advisors

Glasgow

9 December 2008Reference: xxx

LynetteSomewhereEngland

Dear Madam

Sale of House

Thank you for your letter in which you request tax advice on the sale of your house.

Under the current rules your main residence is exempt from capital gains tax for the period you live in it as well as for certain periods which are counted as periods of deemed occupation. Thus no tax is payable on gains accrued during these periods. 1·5

The deemed occupation periods are:

periods (of any length) whilst working abroad; 1periods, not exceeding four years in total, whilst working elsewhere in UK; and 1periods, not exceeding three years in total, for any reason; 1provided these periods are preceded and followed by a period of actual occupation. 0·5

In addition the last three years of ownership are always treated as a period of occupation. 1It does not matter whether the house is let or empty during these deemed occupation periods. 1

Therefore, I am pleased to be able to let you know that there is no chargeable gain on the sale of your house, as the entire 14 years during which you did not actually live in the property qualifies as a period of deemed occupation, as follows:

Employed overseas 6 years 4 monthsEmployed elsewhere in the UK 4 yearsAbsent for any reason 1 year 3 monthsLast period of ownership 2 years 5 months (a maximum of 3 years is permitted) 2

If you need any further assistance in relation to this or any other matter please do not hesitate to contact me.

Yours sincerely

A Tax advisor

Presentation 2––––

Maximum 10––––

21––––

4 (a) Susan – Adjusted trading profits for the year ended 31 December 2007

£ £Net profit per accounts 32,600 0·5Add back:Drawings 24,000 0·5Electricity – £4,400 x 60% 2,640 0·5Depreciation 1,000 0·5Car expenses – £1,800 x 70% 1,260 0·5Parking fine 400 0·5Legal fee re tax advice (personal) 50 0·5Goods for own use (selling price) 1,250 30,600 0·5

––––––– ––––––––63,200

Less capital allowances (800) 0·5––––––––

Adjusted taxable profits £62,400––––––––––––––––

17



MarksUnadjusted items: Son’s wages

Shop rentBusiness ratesBad debt written offLegal fee re renewal of short leaseTrade donation

0·5 for each – maximum of 2·5––––

7––––

(b) Graham – National insurance contributions for the tax year 2007–08

Class 2: £2·20 x 52 weeks £114 1––––––––––––––

Class 4: 1st £5,225 nil(£34,840 – £5,225) x 8% 2,369(£42,000 – £34,840) x 1% 72

–––––––£2,441 1·5––––––––––––––

Payable:Class 2: Monthly; or quarterly (by direct billing). 1

Class 4 Payments on account based on 50% of last year’s contributions are due on:31 January 2008 and 31 July 2008. 1·5

The balance is due on 31 January 2009. 1––––

6––––

(c) Fitz – Assessable trading profits

2006–07 Current year basis – Year ended 30 November 2006 £18,000 1––––––––––––––––

2007–08 Balance of profitsYear ended 30 November 2007 20,000Period to 31 January 2008 3,000

–––––––23,000 2

Less unrelieved overlap profits (1,000) £22,000 1––––––– –––––––– ––––––––––––

4––––

(d) Emma – Value added tax for the quarter ended 31 March 2008

£ £Output tax:Standard rated sales £450,000 x 96% x 17·5% 75,600 1Zero rated sales – 0·5

Input tax:Stock £180,000 x 17·5% 31,500 1Wages – outside the scope of VAT – 0·5Electricity £40,000 x 7/47 5,957 1Car expenses £15,000 x 7/47 2,234 1Bad debt £1,200 x 17·5% 210 1Bad debt of £900 – less than six months old – 0·5

––––––––(39,901)

––––––––VAT payable £35,699 0·5

–––––––– ––––––––––––7

––––24

––––

18



Documents

ACCA - CAT | Paper T9 Preparing Taxation Computations Solved Past Papers