ACCA Certified Accounting Technician Examination Paper T9 (IRL) Preparing Taxation Computations (Irish)

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2 ACCA Certified Accounting Technician Examination Paper T9 (IRL) Preparing Taxation Computations (Irish) December 29 Answers and Marking Scheme Section A 1 C As the employee travels less than 15, business miles per annum, he/she is assessed on 3% of the original market value of the car. 2 B i.e. 31 October D The maximum amount which can be claimed is 5,. 4 A Mark can deduct his capital allowances in calculating his PRSI and health contribution but not his pension contribution. The rate of PRSI for a self-employed person is 3% and for health contributions, it is 2% because his income is between 26, and 1,1. Therefore his PRSI and levies are 46, x 5% = 2,3 5 B Gains made on disposals between married persons are exempt from capital gains tax. 6 D As the individual must have attained the age of 55 in order to qualify for retirement relief. 7 D The fi rst accounting period for a company is 12 months from the date of commencement to trade, unless the accounting period is shorter than 12 months, which is not the case here. 8 C The due date is 21 November 28, being the date 31 days before the end of the accounting period, but no later than the 21st day of the month in which it falls. 9 A The due date for fi ling a VAT return is the 19th day of the month following the end of the bi-monthly period. 1 D VAT on motor cars is not deductible in computing a business s VAT liability. All of the other expenses listed are. (2 marks) 17

3 Section B Marks 1 Fiona (a) Income tax liability for the year ended 31 December 28 Schedule E 3, Schedule D Case IV (gross) 2, Schedule D Case V (working) Schedule F 15, 47, Medical expenses (8) Pension contribution (1,5) 44,7 Tax at 2% on 35,4 7,8 Tax at 2% on 2, 4 Tax at 41% on balance 2,993 1,473 non-refundable tax credits Single persons allowance (1,83) PAYE allowance (1,83) (3,66) 6,813 Deduct PAYE (5,) DIRT (4) Dividend withholding tax (3,) (8,4) Tax overpaid (1,587) Working: Case V property income Apartment 1 Apartment 2 Total Rent 13, 5, 18, Interest (8,75) (8,667) (17,417) Insurance (46) (24) (7) Repairs (75) (75) PRTB (7) (7) 3,4 (3,977) (937) Case V loss (937) 16 (b) 1 Interest is an allowable expense provided the property is registered with the PRTB. However, pre letting interest is not allowable so the interest relief is restricted on a time apportionment basis to when the property was let (13,/9 x 6 = 8,667). 2 Insurance is an allowable expense, but the amount allowed is restricted to the period in 28 when the property was let (48/12 x 6 = 24). 3 Repairs are an allowable expense, but repairs incurred pre letting are not allowed (3 for the tank and 3, for the repainting). 4 The cost of registering the property with the PRTB is an allowable expense. 7 (c) Case V losses can be set against other Case V income of the same year and any unused portion is carried forward and available for set-off against future Case V profi ts. 2 Total 25 18

4 2 IQ Communications Ltd Marks Corporation tax computation for the year ended 31 December 28 Profi t per accounts 512,715 Deduct Interest received (8,) 54,715 Add back Notes Depreciation 14, Motor expenses 1 24 Repairs and renewals 2 7,5 Christmas gifts to suppliers 3 35 Political donations 4 4 Interest to Revenue 5 32 Professional fees 6 18, 4,81 545,525 Capital allowances (working) (26,63) Case I income 519,462 Case III income 8, Total profi ts 527,462 Corporation tax at 12 5% 64,933 Corporation tax at 25% 2, Total corporation tax liability 66,933 Notes 1 Motor expenses The interest on the car loan is not restricted. The running costs of the car are fully allowable Speeding fi nes are not allowable The staff travel passes are fully allowable. 2 Repairs and renewals The computers are capital items and must be added back. Capital allowances may be claimed instead. The repairs to the window and the painting of the storeroom are both allowable. 3 Advertising TV advertising is allowable as its purpose is to generate business. The suppliers Christmas gifts are not allowable as they are treated as entertainment. The staff Christmas party is allowable. 4 Donations The charitable donation is allowable as it is made to an eligible charity and exceeds 25. The political donations are not allowable. 5 Interest paid The interest paid to the bank is allowable as it relates to a loan for working capital. The interest paid to the Revenue because of the late payment of PAYE is not allowable. 6 Professional fees Audit and accountancy fees and the legal fees in connection with bad debt collection are allowable. The legal fees incurred in connection with the possible new investor are not allowable. 19

5 Marks Working: Capital allowances for the year ended 31 December 28 Computers Fixtures and fittings Motor car Total (12 5%) (12 5%) (12 5%) Original cost (tax adjusted) 15, 27, 24, 21, Additions 7,5 7,5 157,5 27, 24, 28,5 TWDV 1 January ,25 2,25 21, 172,5 Additions 7,5 7,5 138,75 2,25 21, 18, Wear and tear (19,688) (3,375) (3,) (26,63) 1 5 TWDV 31 December ,62 16,875 18, 153,937 Total 22 3 James (a) Capital gains tax year to 31 December 28 Sale proceeds 3, 1992 Cost 18, Index factor ( ) 1,46 Indexed cost (253,8) 46,92 Taxable portion 3 x 46, ,9 2 annual allowance (1,27) 5,63 Tax at 2% 1,126 Calculation of qualifying/non-qualifying periods (months) Qualifying Non-quailfying 1 January 1992 to 3 June July 1995 to 31 December January 1998 to 3 June July 25 to 31 December January 28 to 31 December 28 (last 12 months) Total period of ownership 24 Notes: During the period that James lived in the house, he is entitled to principal private residence relief. This covers the periods: 1 January 1992 to 3 June 1995 and 1 January 1998 to 3 June 25 The period from 3 June 1995 to 31 December 1997, when James was sent to work in Cork by his employer is regarded as a period of deemed occupation as: it does not exceed four years; and he occupied the house before and after his period in Cork. The last 12 months is regarded as a period of occupation. Therefore, the only period that James is not regarded as living in the Dublin house is from 1 July 25 to 31 December 27, when he lived in his new house, in Wicklow. 17 (b) The tax due is payable on 31 January 29. Total 18 2

6 4 (a) Gladbags Ltd Marks Corporation tax for the year ended 3 September 28 Case I Case III 16, Case V 2,5 Total profi ts 18,5 Corporation tax at 25% 4,625 Case I loss on a value basis (37, x 12 5%) (4,625) 1 5 Total profi ts Nil Tax liability Nil Corporation tax for the year ended 3 September 27 Case I 5, loss carried back from 28 (5,) Case III 27, Case V 3, Total profi ts 3, Corporation tax at 25% 7,5 Case I loss on a value basis (1, x 12 5%) (1,25) 1 5 Tax liability 6,25 Loss memorandum: Trade loss in the year ended 3 September 28 97, Set against Case I in the year ended 3 September 27 (5,) Set against total profi ts in the year ended 3 September 28 (37,) Set against total profi ts in the year ended 3 September 27 (1,) (balance) Nil 1 (b) Seasons Ltd VAT liability for September and October 28. VAT on sales 15, at 21% 31,5 Input VAT on purchases: Goods for resale 21 15, x , Telephone 4, x Electricity ,4 x 44 (19,321) VAT liability 12,179 Note: VAT on petrol and entertainment are not recoverable. 5 Total 15 21