ACCA Fundamentals Level Paper F6 (FA 2012) Taxation (UK) Final Mock Examination

Transcription

1 ACCA Fundamentals Level Paper F6 (FA 2012) Taxation (UK) Final Mock Examination Question Paper Time allowed Reading and Planning Writing 15 minutes 3 hours ALL FIVE questions are compulsory and MUST be attempted During reading and planning time only the question paper may be annotated Instructions: Take a few moments to review the notes on the inside of this page titled, Get into good exam habits now! before attempting this exam. DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS ACF6EFM13(D) Questions This examination has been prepared for the December 2013 sitting

2 Get into good exam habits now! Take a moment to focus on the right approach for this exam. Effective time management Watch the clock, allocate 1.8 minutes to each mark and move on if you get behind. Take a few moments to think what the requirements are asking for and how you are going to answer them. Remember one mark is usually allocated for each point you give in a discursive question. Effective planning This paper is in exactly the same format as the real exam. You should read through the paper and plan the order in which you will tackle the questions. Always start with the one you feel most confident about. Read the requirements carefully: focus on mark allocation, question words (see below) and potential overlap between requirements. Identify and make sure you pick up the easy marks available in each question. Effective layout Present your numerical solutions using the standard layouts you have seen. Show and reference your workings clearly. With written elements try and make a number of distinct points using headings and short paragraphs. You should aim to make a separate point for each mark. Ensure that you explain the points you are making ie why is the point a strength, criticism or opportunity? Give yourself plenty of space to add extra lines as necessary, it will also make it easier for the examiner to mark. Common terminology State Express, fully or clearly, the details of/facts of Define Give the exact meaning of Describe Communicate the key features of Distinguish Highlight the differences between Explain Make clear or intelligible/state the meaning of Identify Recognise, establish or select after consideration Illustrate Use an example to describe or explain something Calculate/compute To ascertain or reckon mathematically Demonstrate To prove with certainty or to exhibit by practical means Prepare To make or get ready for use Analyse Examine in detail the structure of Compare and contrast Show the similarities and/or differences Discuss To examine in detail by argument Produce To create or bring into existence Advise To counsel, inform or notify Evaluate To appraise or assess the value of Recommend To advise on a course of action 2 ACF6EFM13(D) Questions This examination has been prepared for the December 2013 sitting

3 Tax tables The following tax rates and allowances are to be used in answering the questions. Income tax Normal rates Dividend rates Basic rate 1 34,370 20% 10% Higher rate 34, ,000 40% 32.5% Additional rate 150,001 and over 50% 42.5% A starting rate of 10% applies to savings income where it falls within the first 2,710 of taxable income. Personal allowances Personal allowance standard 8,105 Personal allowance aged 65 to 74 10,500 Personal allowance aged 75 and over 10,660 Income limit for age-related allowances 25,400 Income limit for standard personal allowance 100,000 Car benefit percentage The base level of CO 2 emissions is 100 grams per kilometre. The percentage rates applying to petrol cars with CO 2 emissions up to this level are: % 75 grams per kilometre or less 5 76 grams to 99 grams per kilometre grams per kilometre 11 Car fuel benefit The base figure for calculating the car fuel benefit is 20,200. Individual savings accounts (ISAs) The overall investment limit is 11,280, of which 5,640 can be invested in a cash ISA. Pension scheme limits Annual allowance 50,000 The maximum contribution that can qualify for tax relief without any earnings is 3,600. Up to 10,000 miles Over 10,000 miles Authorised mileage allowances: cars Capital allowances Plant and machinery % Main pool 18 Special rate pool 8 Motor cars CO 2 emissions up to 110 grams per kilometre 100 CO 2 emissions between 111 and 160 grams per kilometre 18 CO 2 emissions over 160 grams per kilometre 8 Annual investment allowance First 25,000 of expenditure p 25p ACF6EFM13(D) Questions 3 This examination has been prepared for the December 2013 sitting

4 Corporation tax Financial year Small profits rate 21% 20% 20% Main rate 28% 26% 24% Lower limit 300, , ,000 Upper limit 1,500,000 1,500,000 1,500,000 Standard fraction: 7/400 3/200 1/100 Marginal relief Standard fraction (U A) N/A Value Added Tax Standard rate 20% Registration limit 77,000 Deregistration limit 75,000 Inheritance tax: tax rates 1 325,000 0% Excess death rate 40% lifetime rate 20% Inheritance tax: taper relief Years before death % reduction Over 3 but less than 4 years 20 Over 4 but less than 5 years 40 Over 5 but less than 6 years 60 Over 6 but less than 7 years 80 Capital gains tax Rate of tax for individuals Lower rate 18% Higher rate 28% Annual exempt amount 10,600 Entrepreneurs relief Lifetime limit 10,000,000 Rate of tax 10% National insurance (not contracted-out rates) % Class 1 Employee 1 7,605 per year Nil 7,606 42,475 per year ,476 and above per year 2.0 Class 1 Employer 1 7,488 per year Nil 7,489 and above per year 13.8 Class 1A 13.8 Class per week Small earnings exception 5,595 Class 4 1 7,605 per year Nil 7,606 42,475 per year ,476 and above per year 2.0 Rates of Interest Official rate of interest 4% Rate of interest on underpaid tax 3% (assumed) Rate of interest on overpaid tax 0.5% (assumed) Supplementary information Calculations and workings need only be made to the nearest. All apportionments may be made to the nearest month. All workings should be shown. 4 ACF6EFM13(D) Questions This examination has been prepared for the December 2013 sitting

5 All FIVE questions are compulsory and MUST be attempted 1 Tracey (a) Until 30 September 2012, Tracey was employed by Finance Plc when she decided to take a career break. The following information is available for the tax year 2012/13: Employment with Finance plc (1) A monthly salary of 12,000. In addition to her salary, on 12 May 2012 Tracey was paid a profit related bonus of 5,000. The bonus was based on Finance Plc s results for the year end 31 December (2) During the period from 6 April 2012 to 30 September 2012 Tracey s two year old son was provided with a place at Finance Plc s work place nursery. The total cost to the company of providing this nursery place was 9,555 (147 days at 65 per day). (3) On 1 May 2012 Finance Plc provided Tracey with an interest free loan of 50,000 which she used to purchase an antique vase. Tracey repaid 10,000 of the loan on 30 June 2012 and repaid the balance of the loan when she ceased employment on 30 September (4) Finance Plc provided Tracey with a home entertainment system for her personal use costing 6,000 on 6 April The company gave the home entertainment system to Tracey for free when she left the company on 30 September 2012, although its market value at that time was 4,500. (5) During the period 6 April 2012 to 30 September 2012 Finance Plc paid gym membership fees of 1,234 for Tracey. (6) Tracey contributed 5% of her monthly gross salary of 12,000 into Finance Plc s HM Revenue and Customs registered occupational pension scheme. (7) Finance plc paid 9,000 PAYE for 2012/13 in relation to Tracey s employment. Property income (1) Tracy purchased a house, Redacre, on 1 September 2012, which she let it out (unfurnished) from 1 October 2012 to 5 April 2013 at a monthly rent of 1,500, payable in advance. During September 2012 Tracey spent 1,275 on advertising for tenants. For the period 1 September 2012 to 5 April 2013 she paid interest of 3,700, in respect of a loan that was taken out to purchase Redacre, and buildings insurance of 413. (2) Tracy also owned another house, Bluewater, which was let out (furnished) until 31 December 2012 at a monthly rent of 800, payable in advance. On 31 December 2012 the tenant left owing two months rent which Tracey was unable to recover. Bluewater was not re-let before 5 April During March 2013 Tracey spent 1,500 repairing the roof of Bluewater. Tracy paid buildings insurance of 400 for the year from 1 January 2012 and 448 for the year from 1 January (3) Where possible, Tracey claims the wear and tear allowance. Other information (1) During the tax year 2012/13 Tracey received building society interest of 2,280 and dividends of 1,890. These were the actual cash amounts received. (2) On 4 August 2012 Tracey received a premium bond prize of 100. Required Calculate the income tax payable by Tracey for the tax year 2012/13. (19 marks) ACF6EFM13(D) Questions 5 This examination has been prepared for the December 2013 sitting

6 (b) In 2011, Tracey purchased a luxury yacht for her own use. Many of her friends wanted to borrow it for special occasions and in July 2013, she began charging 1,000 per day for the use of the yacht. Tracy has been advised that the hiring out of the yacht has resulted in taxable profits, but she has said that she does not wish to disclose them to HM Revenue and Customs. Required (i) Briefly explain the difference between tax evasion and tax avoidance, and how HM Revenue and Customs would view the situation if Tracey does not disclose her taxable profits in respect of the yacht. (3 marks) (ii) Briefly explain from an ethical viewpoint how you, as a trainee Chartered Certified Accountant, should deal with the suggestion from Tracey that no disclosure is made to HM Revenue and Customs. (3 marks) (Total: 25 marks) 2 Brandon Ltd (a) Brandon Ltd is a United Kingdom resident manufacturing company. The company s statement of profit or loss for the year ended 31 March 2013 is as follows: Note Gross profit 811,400 Operating expenses Depreciation 95,000 Amortisation of leasehold property 1 8,000 Gifts and donations 2 2,650 Professional fees 3 17,000 Other expenses 4 250,250 (372,900) Operating profit 438,500 Income from investments Bank interest 5 14,500 Dividends 6 70,000 84,500 Profit from sale of fixed assets Disposal of shares 7 78, ,000 Interest payable 8 (51,000) Profit before taxation 550,000 Note 1 Leasehold property On 1 April 2012 Brandon Ltd acquired a leasehold office building, paying a premium of 80,000 for the grant of a new ten-year lease. The office building was used for business purposes by Brandon Ltd throughout the year ended 31 March No legal costs were incurred by Brandon Ltd in respect of this lease. Note 2 Gifts and donations Gifts and donations are as follows: Gifts to customers (pens costing 75 each and displaying Brandon Ltd s name) 900 Gifts to customers (hampers of food costing 35 each) 1,050 Donation to local charity (Brandon Ltd received free advertising in the charity s 700 magazine) 2,650 6 ACF6EFM13(D) Questions This examination has been prepared for the December 2013 sitting

7 Note 3 Professional fees Professional fees are as follows: Legal fees in connection with the renewal of a 25-year property lease in respect of a 2,500 warehouse Legal fees in connection with the issue of loan stock (see note 8) 14,500 17,000 Note 4 Other expenses The figure of 250,250 for other expenses includes 7,590 for entertaining clients and 5,000 for entertaining employees. Note 5 Bank interest received The bank interest was received on 31 March There is no accrual at 31 March The bank deposits are held for non-trading purposes. Note 6 Dividends received During the year ended 31 March 2013 Brandon Ltd received dividends of 25,000 from Dunedin Ltd, a 100% UK subsidiary company, and dividends of 45,000 from Canon Ltd, an unconnected UK company. Both figures are the actual cash amounts received. Note 7 Profit on disposal of shares The profit on disposal of shares is in respect of a 5% shareholding that was sold on 25 September The disposal resulted in a chargeable gain of 35,006. This figure is after taking account of indexation. Note 8 Other information The interest payable is in respect of the company s 5% loan stock that was issued on 1 April The proceeds of the issue were used to finance the company s trading activities. Interest of 25,500 was paid on 30 September 2012 and again on 31 March Note 9 Plant and machinery On 1 April 2012 the tax written down values of plant and machinery were as follows: Main pool 20,500 Special rate pool 15,200 The following transactions took place during the year ended 31 March 2013: Cost/(Proceeds) 10 June 2012 Purchased equipment 1, June 2012 Purchased motor car (1) 10,200 CO 2 emissions 150 g/km 25 September 2012 Purchased motor car (2) 14,500 CO 2 emissions 105 g/km 7 November 2012 Purchased a lorry 21, February 2013 Sold equipment (4,200) The equipment sold on 27 February 2013 for 4,200 was originally purchased in 2010 for 9,200. Required (i) (ii) Calculate Brandon Ltd s tax adjusted trading profit for the year ended 31 March 2013, after deducting capital allowances. Your computation should commence with the profit before taxation figure of 550,000, and should list all of the items referred to in notes (1) to (9) indicating by the use of zero (0) any items that do not require adjustment. (15 marks) Calculate Brandon Ltd s corporation tax liability for the year ended 31 March 2013 and state the date of payment. (5 marks) ACF6EFM13(D) Questions 7 This examination has been prepared for the December 2013 sitting

8 (b) Note that in answering this part of the question you are not expected to take account of any of the information provided in part (a) above. The following information is available in respect of Brandon Ltd s value added tax (VAT) for the quarter ended 31 March 2013: (1) Invoices were issued for sales of 89,200 to VAT registered customers. Of this figure, 70,400 was in respect of exempt sales and the balance in respect of standard rated sales. The standard rated sales figure is exclusive of VAT. (2) In addition to the above, on 15 March 2013 Brandon Ltd issued a VAT invoice for 10,000 plus VAT of 2,000 to a VAT registered customer. This was in respect of a contract for standard rated financial services that will be completed on 30 April The customer paid for the contracted services in two instalments of 6,000 on 31 March 2013 and 30 April 2013 respectively. (3) Invoices were issued for sales of 150,000 to non-vat registered customers. Of this figure, 120,000 was in respect of exempt sales and the balance in respect of standard rated sales. The standard rated sales figure is inclusive of VAT. (4) The managing director of Brandon Ltd is provided with free fuel for private mileage driven in her company motor car. During the quarter ended 31 March 2013 this fuel cost Brandon Ltd 295. The relevant quarterly scale charge is 366. Both these figures are inclusive of VAT. For the quarters ended 31 December 2011 and 30 September 2012 Brandon Ltd was two months late in submitting its VAT returns and in paying the related VAT liabilities. All of the company s other VAT returns have been submitted on time. Required (i) Calculate the amount of output VAT payable by Brandon Ltd for the quarter ended 31 March (4 marks) (ii) State the circumstances in which Brandon Ltd is and is not required to issue a VAT invoice. (3 marks) (iii) Advise Brandon Ltd of the default surcharge implications if it is one month late in submitting its VAT return for the quarter ended 31 March 2013 and in paying the related VAT liability. (3 marks) (Total: 30 marks) 3 Pat Pat had the following events relating to capital gains tax during the tax year 2012/13: (1) On 10 July 2012 Pat sold five acres of land for 620,000. Pat had held the land as an investment since he had inherited it upon the death of his mother on 15 December 2000, when the land was valued at 182,000. Pat s mother had originally purchased the land for 77,000. (2) On 1 December 2012 an office building, owned by Pat as an investment, was damaged by a fire. The cost of the office building on that date was 210,000. Pat received insurance proceeds of 63,000 on 10 January 2013, and spent a total of 71,000 during March 2013 on restoring the office building. Pat made a claim to defer the gain arising from the receipt of the insurance proceeds. (3) On 19 September 2012 Pat made a gift of 10,000 1 ordinary shares in Randridge plc to his daughter. On that date the shares were quoted on the Stock Exchange at , with recorded bargains of 4.50, 4.65 and ACF6EFM13(D) Questions This examination has been prepared for the December 2013 sitting

9 Pat has made the following purchases of shares in Randridge plc: 17 March ,000 shares for 12,600 9 September ,000 shares for 16,500 1 October ,000 shares for 8,500 Pat s total shareholding was less than 5% of Randridge plc and so gift relief is not available. (4) On 31 December 2012 Pat sold a house for 360,000. The house had been purchased on 1 January 1993 for 50,000. Pat occupied the house as his main residence from the date of purchase until 31 December The house was then unoccupied between 1 January 1998 and 31 December 2001 due to Pat being required by his employer to work elsewhere in the United Kingdom. From 1 January 2002 until 30 June 2003 Pat again occupied the house as his main residence. The house was then unoccupied until it was sold on 31 December Throughout the period 1 January 1993 to 31 December 2012 Pat did not have any other main residence. Pat s taxable income in 2012/13 was 27,370. Pat has capital losses brought forward from 2011/12 of 25,000. Required Calculate the capital gains tax payable by Pat for 2012/13 and state the date of payment. (15 marks) 4 Kyle and Millie (a) (b) On 1 August 2012, Kyle joined a partnership, having been out of work since January The existing partners were Ivor and Julie. The tax adjusted trading profits of the partnership were 100,800 for the year ending 31 December 2012 and are expected to be 120,000 for the year ending 31 December The following profit sharing arrangements applied from 1 August 2012: Ivor Julie Kyle Annual salary 24,000 18,000 Profit share 50% 30% 20% Required (i) Calculate Kyle s share of the adjusted trading profits for the year to 31 December 2012 and the year to 31 December 2013 and use this to calculate Kyle s taxable trading profit for the tax year 2012/13. (8 marks) (ii) Calculate the class 4 national insurance contributions payable by Kyle for the tax year 2012/13. (1 mark) Millie is a sole trader who had been in business for many years and who prepares accounts to 31 October each year. In the year to 31 October 2013, she had taxable trading profits of 125,000. Millie has no other sources of income. Millie is considering making a personal pension contribution of 24,000 (net) on 1 March Required (i) Calculate Millie s income tax liability for 2013/14 if she does not make the personal pension contribution. (2 marks) ACF6EFM13(D) Questions 9 This examination has been prepared for the December 2013 sitting

10 (ii) Calculate Millie s income tax liability for 2013/14 if she does make the personal pension contribution. (4 marks) You should assume that the tax rates and allowances for the tax year 2012/13 will continue to apply in 2013/14. 5 Joan Joan died on 31 December She had made the following gifts during her lifetime: 1 July 2006: she gave 250 to each of her ten grandchildren (Total: 15 marks) 5 July 2008: she gifted 487,000 to a trust for the benefit of her family. Joan paid any tax due. The nil rate band in 2008/09 was 312, February 2010: she gave her great-granddaughter a wedding gift of 25,000 At the date of her death, Joan owned the following assets: Her residence, valued at 750,000 A vintage car valued at 30,000 Shares held in an ISA valued at 105,000 Bank savings account balance 25,000 Joan s funeral expenses were 6,500. Under the terms of her will Joan left 75,000 to her husband, 125,000 to the trust and the balance of her estate to be shared equally between her three children. Required (a) State the amount of any exempt transfers in relation to the lifetime gifts. (3 Marks) (b) Calculate any lifetime tax payable on the gift to the trust, clearly showing the value of the transfer to be carried forward. (4 Marks) (c) Calculate the death tax due on the lifetime gifts. (4 Marks) (d) Calculate the death tax due on the death estate. (4 Marks) (Total: 15 marks) 10 ACF6EFM13(D) Questions This examination has been prepared for the December 2013 sitting

11 Student self-assessment Having completed this paper take a few minutes to consider what you did well and what you found difficult. Use this as a basis to focus your future study on effectively improving your performance. Common problems Future emphasis if you answer Yes Timing and planning Did you finish too early? Y/N Focus your planning time on generating more ideas. Use models to help develop width to your thinking. Did you overrun? Y/N Focus on allocating your time better. Practise questions under strict timed conditions. If you get behind leave space and move on. Did you waffle? Y/N Focus your planning time on developing a logical structure to your answer. Layout Was your answer difficult to follow? Y/N Use headings and subheadings. Use numbering sequences when identifying points. Leave space between each point. Did you fail to explain each point? Y/N Show why the point identified answers the question set. Were some of your workings unclear? Y/N Give yourself time and space to make the marker's job easy. Content Did you struggle with: Interpreting the questions? Y/N Learn the meaning of question words (inside front cover). Learn subject jargon (study text glossary). Read questions carefully noting all the parts. Practise as many questions as possible. Understanding the subject? Y/N Review your notes/text. Work through easier examples first. Contact a tutor for help. Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to develop your memory as well as your understanding of a subject. ACF6EFM13(D) Questions 11 This examination has been prepared for the December 2013 sitting

12 BPP House, Aldine Place, London W12 8AA Tel: (for orders within the UK) Tel: +44 (0) Fax: +44 (0) ACF6EFM13(D) Questions This examination has been prepared for the December 2013 sitting

13 ACCA Fundamentals Level Paper F6 (FA 2012) Taxation (UK) Final Mock Examination Guidance, Marking scheme and Suggested solutions ACF6EFM13(D) Suggested solutions

14 Guidance on improving your exam performance Which questions to do first? It is important for you to decide which order to attempt the questions. Each question will carry different marks so you may prefer to attempt the question with the most marks first or, instead, you may prefer to attempt the topic you are more confident about first. This means you will build up marks early on giving you a solid base to tackle the harder questions later. Whichever you choose, do not spend too long on the questions you are confident about as you need to spend an appropriate amount of time on them all. You can work out how much time you should spend on each by looking at the mark allocation and multiplying by 1.8 (as you have 1.8 minute per mark, not including reading time). For instance, you must not spend more than 27 minutes on a 15-mark question. Remember, you cannot pass the exam answering two or three questions well and the rest poorly. An alternative strategy is to answer all questions in strict order. You could use the time saved choosing the order by starting to plan your answers. You may prefer to use this method if you find yourself spending too long on your favourite questions as it forces you to spend an appropriate amount of time on each before moving on. Strategy Make sure your answers are easy to follow. The focus of the exam is computations, so make sure you use the correct proformas and show your workings, referenced in clearly. If there is a written element to a question do write full sentences, even if you are using bullet points. Time management Use the reading time to make sure that you get as many of the marks as possible. This is your opportunity to brainstorm areas that you are less confident with and even to make a brief outline of the proformas you are going to use in your answers. Whatever notes/plans you make, use them when writing up your answer when the writing time begins. Tick off each item as you complete it. If you do not use your planning notes it was a waste of time doing them in the first place. Never overrun on any question; once the time is up move on to the next one. 2 ACF6EFM13(D) Suggested solutions

15 1 Tracey Marking scheme 1 (a) Salary Occupational pension scheme contributions 1 Bonus Workplace nursery 1 Beneficial loan Average method 1 Strict method 1 Home entertainment system Use 1 Acquisition 1 Gym membership Property business profit: Rent receivable 1 Advertising Loan interest Impairment losses Repairs Insurance 1 Wear and tear allowance 1 Tax Computation Building society interest Dividends Premium bond prize Personal allowance Income tax 1 Tax suffered at source (b) (i) Tax evasion 1 Tax avoidance 1 HMRC view 1 1 (b) (ii) Professional judgment and standard of conduct 1 Advise Tracey to disclose 1 Cease to act and inform HMRC Make money laundering report 3 Total 25 3 ACF6EFM13(D) Suggested solutions 3

16 Suggested solution Text references. The income tax computation is dealt with in Chapter 2. Employment income is in Chapter 3 and benefits in Chapter 4. Property income is covered in Chapter 6. Tax avoidance and tax evasion, and ethics are dealt with in Chapter 1. Top tips. Use workings to show the details of your computations rather than putting them in the main computation of tax. Easy marks. There were some easy marks here for working out the employment benefits and the property income. 1 (a) Tracey /13 Income Tax Computation Non savings Savings Dividend Employment income (w1) 81,367 Property income (w3) 6,740 Building society interest (BSI) 2, /80 2,850 Dividends 1, /90 2,100 Premium Bond Prize Exempt Net income 88,107 2,850 2,100 Less personal allowance (8,105) Taxable income 80,002 2,850 2,100 Tax At 20% 34,370 6,874 At 40% 45,632 18,253 At 40% 2,850 1,140 At 32.5% 2, Tax liability 26,949 Tax paid: Dividends 2,100 10% 210 PAYE 9,000 BSI 2,850 20% 570 (9,780) Income tax payable 17,169 Working 1 Employment income Salary (12,000 6) 72,000 Contributions to Occupational Pension Scheme 72,000 5% ( 3,600) Bonus (received in year) 5,000 Work place nursery Exempt Interest free loan (w2) 733 Home entertainment system: Use of: 6,000 20% 6/ Gift of: Greater of Original MV 6,000 Less use benefit ( 600) 5,400 5,400 MV when given 4,500 Gym membership 1,234 Employment income 81,367 4 ACF6EFM13(D) Suggested solutions

17 Working 2 Interest benefit Average basis: (50,000 + (50,000 10,000))/2 4% 5/ Strict basis: 50,000 4% 2/ ,000 4% 3/ Tracey should elect for the strict basis to apply. W3 Property income Rent receivable Redacre 6 1,500 9,000 Bluewater ,200 Expenses Advertising 1,275 Interest 3,700 Irrecoverable rent ,600 Repairs 1,500 Insurance Redacre 413 Bluewater 400 9/ / Wear & Tear allowance (7,200 1,600) 10% Property income 560 (9,460) 6,740 1 (b) (i) Tax evasion is illegal and involves reducing tax liabilities by not providing information to which HMRC is entitled or by providing HMRC with deliberately false information. Tax avoidance involves the minimisation of tax liabilities by the use of any lawful means, such as investing in an individual savings account. If Tracey makes no disclosure of the taxable profits for the letting out of the yacht, this will be viewed as tax evasion by HMRC. 1 (b) (ii) This matter is one of professional judgement and a trainee Chartered Certified Accountant would be expected to act honestly and with integrity. Tracey should therefore be advised to disclose the taxable profits to HMRC. If such disclosure is not made, you should consider ceasing to act for Tracey. If you do cease to act for her, you should inform HMRC of this fact but you do not need to provide any reason. A report should also be made under the money laundering regulations. ACF6EFM13(D) Suggested solutions 5

18 2 Brandon Ltd Marking scheme 2 (a) (i) Profit before taxation Depreciation Amortisation of leasehold property Gifts of pens to customers Gifts of hampers to customers Donation Legal fees re renewal of lease Legal fees re issue of loan stock Entertaining clients Entertaining employees Bank interest received Dividends received Disposal of shares Interest payable Lease premium Assessable amount 1 Deduction 1 P & M Main pool 2 AIA 1 Special rate pool 1 FYA 1 2 (a) (ii) Trading profit Bank interest Chargeable gain Franked investment income Group dividends Corporation tax 2 Due date 2 (b) (i) Sales VAT registered customers 1 Additional contract 1 Non-VAT registered customers 1 Fuel scale charge 1 2 (b) (ii) Taxable supply to VAT registered customers 1 Exempt supplies 1 Not VAT registered 1 2 (b) (iii) Previous late submissions 1 Surcharge 1 Extension of surcharge period 1 3 Total ACF6EFM13(D) Suggested solutions

19 Suggested solution Text references. Computing taxable total profits is in Chapter 19 and the computation of corporation tax in Chapter 20. Capital allowances are dealt with in Chapter 8. VAT is the subject of Chapters 26 and 27. Top tips. You must follow the instructions in the question start with the profit before taxation figure and indicate with a zero any items which do not require adjustment. You will not gain the available marks if you simply omit such items. Easy marks. The point about invoices in part (b)(ii) was straightforward. 2 (a) (i) Brandon Ltd Trading profit for the year ended 31 March 2013 Profit before taxation 550,000 Add Depreciation 95,000 Amortisation of leasehold property 8,000 Gifts of pens to customers 900 Gifts of hampers to customers 1,050 Donation 0 Legal fees re renewal of lease 0 Legal fees re issue of loan stock 0 Entertaining clients 7,590 Entertaining employees 0 112,540 Less Bank interest 14,500 Dividends 70,000 Profit on disposal of shares 78,000 Interest payable 0 Deduction for lease premium (w 1) 6,560 Capital allowances (w 2) 42,986 (212,046) Trading profit 450,494 Working 1 Deduction for lease premium The office building has been used for business purposes, and so the proportion of the lease premium assessed on the landlord can be deducted, spread over the life of the lease. The amount assessed on the landlord is 65,600 calculated as follows: Premium received 80,000 Less: 80,000 2% (10 1) (14,400) Taxable as property income 65,600 This is deductible over the life of the lease, so the deduction for the year ended 31 March 2013 is 6,560 (65,600/10). ACF6EFM13(D) Suggested solutions 7

20 Working 2 Capital allowances Main Special rate AIA FYA pool pool Allowances TWDV b/f Additions qualifying for 1,000 20,500 15,200 AIA 21,500 AIA (100%) (22,500) 22,500 Addition not qualifying 10,200 for AIA Addition qualifying for FYA (low emission car) 14,500 FYA 100% Disposal (14,500) (4,200) 26,500 14,500 18% (4,770) 4,770 8% (1,216) 1,216 TWDVs c/f 21,730 13,984 Allowances 42,986 Tutorial notes: (1) Gifts to customers are only an allowable deduction if they cost less than 50 per recipient per year, are not of food, drink, tobacco, or vouchers for exchangeable goods, and carry a conspicuous advertisement for the company making the gift. (2) The costs of renewing a short-lease (less than 50 years) and of obtaining loan finance are allowable. (3) The only exception to the non-deductibility of entertainment expenditure is when it is in respect of employees. (4) Interest on a loan used for trading purposes is deductible in calculating the trading profit on an accruals basis. (5) The cost of the equipment sold will have originally been added to the main pool, so the disposal proceeds of 4,200 are deducted from that pool. (a) (ii) Brandon Ltd Corporation tax computation for the year ended 31 March 2013 Trading profit (part (a)) 450,494 Bank interest 14,500 Chargeable gain 35,006 Taxable total profits 500,000 Franked investment income (45, /90) 50,000 Augmented profits 550,000 Corporation tax 500,000 at 24% 120,000 Marginal relief 1/100 (750, ,000) 500,000/550,000 (1,818) Payable 1 January ,182 Notes Brandon Ltd has one associated company, so the upper limit is reduced to 750,000 (1,500,000/2). Group dividends are not included as franked investment income. 8 ACF6EFM13(D) Suggested solutions

21 (b) (i) Sales VAT registered customers (89,200 70,400 = 18,800 20%) 3,760 Additional contract (tax point = invoice date, 15 March 2013) 2,000 Non-VAT registered customers (150, ,000 = 30,000 20/120) 5,000 Fuel scale charge (366 20/120) 61 10,821 (b) (ii) Brandon Ltd must issue a VAT invoice when it makes a taxable supply to a VAT registered customer, but there is no requirement to do so if the supply is exempt or if the supply is to a non-vat registered customer. (b) (iii) Brandon Ltd was late in submitting VAT returns and paying the related VAT liability for the quarters 31 December 2011 and 30 September The company has not managed to revert to a clean default surcharge record by submitting four consecutive VAT returns on time. The late payment of VAT for the quarter ended 31 March 2013 will therefore result in a surcharge of 5% of the VAT liability for that period, although this will not be collected if it is less than 400. In addition, the surcharge period will be extended to 31 March ACF6EFM13(D) Suggested solutions 9

22 3 Pat Marking scheme 2012/13 Computation Loss b/f Annual Exempt Amount Basic rate band remaining 18/28% charge 1 Due date Workings: Land 1 Office 2 Shares - deemed proceeds 2 - cost 1 - pool 2 House - calculation of gain 1 - PPR working 2 Total 15 Suggested solution Text references. Computing chargeable gains is dealt with in Chapter 13, including compensation. The principal private residence exemption is covered in Chapter 14. Shares and securities are to be found in Chapter 16. Top tips. Make sure you deal with each asset separately and then bring the gains together in a summary computation before deducting losses brought forward and the annual exempt amount. Easy marks. There were easy marks available for deducting the annual exempt amount and computing the capital gains tax payable. Did you remember to state the due date? This was another easy half mark. 2012/13 Capital Gains Summary Land (w1) 438,000 Office (w2) nil Randridge Shares (w3) 20,871 House (w6) 100, ,621 Loss b/f (25,000) Annual Exempt Amount (10,600) Taxable Gains 524,021 Tax At 18% (34,370 27,370) = 7,000 1,260 At 28% (524,021 7,000) = 517, ,766 CGT payable 31 January ,026 Working 1 - Land Proceeds 620,000 Cost (182,000) Gain 438, ACF6EFM13(D) Suggested solutions

23 Working 2 - Office Building The insurance proceeds of 63,000 received by Pat have been fully applied in restoring the office building. There is therefore no disposal on the receipt of the insurance proceeds. Working 3 - Randridge Plc Ordinary shares in Randridge plc Deemed proceeds (10, ) 46,000 Cost (w4, w5) (25,129) Gain 20,871 The shares in Randridge plc are valued at 4.60 (( )/2) as this is lower than 4.65 ( /4( )) Working 4 - Matching rules The disposal is first matched against the 2,000 shares purchased on 1 October 2012 (this is within the following 30 days), and then against the shares in the share pool. The cost of the shares disposed of is, therefore, 25,129 (8, ,629 (w5)). Working 5 Share pool Number Cost Purchase 17 March ,000 12,600 Purchase 9 September ,000 16,500 14,000 29,100 Disposal 19 September 2012 (29,100 8,000/14,000) (8,000) (16,629) Carry forward 6,000 12,471 Working 6 - House Disposal proceeds 360,000 Cost (50,000) 310,000 Principal private residence exemption (w7) (209,250) Chargeable 100,750 Working 7 PPR exemption The total period of ownership of the house is 20 years, of which 13.5 years qualify for exemption as follows: Exempt Chargeable Years Years 1 January 1993 to 31 December 1997 (occupied) 5 1 January 1998 to 31 December 2001 (working in UK) 4 1 January 2002 to 30 June 2003 (occupied) July 2003 to 31 December 2009 (unoccupied, no reoccupation) January 2010 to 31 December 2012 (final 36 months) The exemption is, therefore, 209,250 (310, /20). ACF6EFM13(D) Suggested solutions 11

24 4 Kyle and Millie Marking scheme 4 (a) (i) Period from 1 August 2012 to 31 December 2012 Profit for period 1 Salaries 2 Kyle s profit share Year to 31 December 2013 Profit Salaries 1 Kyle s profit share Kyle s taxable trading profit for 2012/13 1 August 2012 to 31 December January 2013 to 5 April (a) (ii) Class 4 NICs 1 4 (b) (i) No pension contribution made Net income No personal allowance Income tax 1 4 (b) (ii) Pension contribution made Personal allowance available 1 Basic rate band extension 1 Income tax 1 4 Total 15 Suggested solution Text references. Partnerships are covered in Chapter 11 and the basis of assessment in Chapter 9. The effect of making personal pension contributions is covered in Chapters 2 and 5. Top tips. In part (a)(i), since you are only required to compute Kyle s share of the adjusted trading profits, it is not necessary to set out the full partnership computation. In part (b)(ii), it is important that you set out the computation of adjusted net profits in a separate working and don t try to incorporate it in the income tax computation. Easy marks. In part (a) (i) there were some easy marks for the calculation of taxable trading profit for 2012/13 for Kyle if you remembered that the opening year rules applied. In part (b)(i) the income tax computation was straightforward ACF6EFM13(D) Suggested solutions

25 4 (a) (i) Kyle s share of the adjusted trading profits and taxable trading profit for 2012/13 Period from 1 August 2012 to 31 December 2012 Profit Kyle Profit 100,800 5/12 42,000 Salary payable to Julie 24,000 5/12 (10,000) Salary payable to Kyle 18,000 5/12 (7,500) 7,500 Profit for distribution 24,500 Kyle s profit share 24,500 20% 4,900 Kyle s share of adjusted trading profits 12,400 Year to 31 December 2013 Profit Kyle Profit 120,000 Salary payable to Julie (24,000) Salary payable to Kyle (18,000) 18,000 Profit for distribution 78,000 Kyle s profit share 78,000 20% 15,600 Kyle s share of adjusted trading profits 33,600 Taxable trading profit for 2012/13 1 August 2012 to 31 December ,400 1 January 2013 to 5 April /12 33,600 8,400 Taxable trading profit for 2012/13 20,800 4 (a) (ii) Class 4 national insurance contributions for the tax year 2012/13 (20,800 7,605) = 13,195 9% 1,188 4 (b) (i) Millie income tax liability for 2013/14 if no pension contribution made Net income 125,000 Less Personal allowance (nil) Taxable income 125,000 Income tax At 20% 34,370 6,874 At 40% (125,000 34,370) = 90,630 36,252 Income tax liability 43,126 Millie income tax liability for 2013/14 if pension contribution made Net income 125,000 Less personal allowance (w1) (8,105) Taxable income 116,895 Income tax At 20% 64,370 (w2) 12,874 At 40% (116,895 64,370) = 52,525 21,010 Income tax liability 33,884 ACF6EFM13(D) Suggested solutions 13

26 Working 1 Personal allowance Net income 125,000 Less gross pension contribution 24, /80 Adjusted net income (30,000) 95,000 As adjusted net income is less than 100,000, the personal allowance is available in full. Working 2 Basic rate limit The basic rate limit is increased by an amount equal to the gross pension contribution of 24, /80 = 30,000, to 64, ACF6EFM13(D) Suggested solutions

27 5 Joan Marking scheme 5(a) Small Gift Exemption Annual Exemptions 1 Marriage Exemption 1 Annual Exemption 5(b) CLT (net) 1 Nil band 1 Charge at 20/80 1 Gross CLT to carry forward 1 5(c) Gross CLT brought forward Nil band 40% charge Taper relief Life tax paid Nil band to PET 40% charge No taper 4 5(d) Death Estate ( per entry) 3 No nil band 40% charge 4 Total ACF6EFM13(D) Suggested solutions 15

28 Suggested solution Text references. Inheritance tax is covered in Chapter 18. Top tips. It is important to realise that amount of the transfer covered by the nil rate band is still chargeable to IHT, just at 0%. This means that the amount of the transfer to be accumulated is the full amount of the transfer not just the part which is chargeable at 20% or 40%. Easy marks. The exemptions in part (a) were easy marks if you did not know these amounts, you must make sure that you learn them! 5 (a) Gifts to Grandchildren Small gift exemption 250 for each gift Gift to Trust Annual Exemption 2008/09 3, /08 b/f 3,000 Wedding Gift to Great-granddaughter Marriage Exemption (remoter ancestor) 2,500 Annual Exemption 2009/10 3,000 5 (b) Lifetime tax Gift to Trust Gift 487,000 Less: annual exemptions (part (a)) (6,000) Net CLT 481,000 Tax At nil 312,000 At 20/80 169,000 42,250 Gross CLT (481, ,250) = 523, ACF6EFM13(D) Suggested solutions

29 5 (c) Death Tax on Life Gifts Gifts to Grandchildren Exempt (covered by small gift exemption) Gift to Trust Gross Chargeable Transfer 523,250 Tax At nil 325,000 At 40% 198,250 79,300 Less Taper (4 5 years) 40% (31,720) Death Tax 47,580 Life Tax Paid (42,250) Payable 5,330 Gift to Great-granddaughter Gift 25,000 Less: marriage exemption (part (a)) (2,500) annual exemption (part (a)) (3,000) PET 19,500 Tax At nil all nil band used by trust nil At 40% 19,500 7,800 Less Taper < 3years nil Payable 7,800 5 (d) Death Estate Residence 750,000 Car 30,000 ISA Shares 105,000 Bank account 25,000 Gross estate 910,000 Funeral expenses (6,500) Net estate 903,500 Gift to spouse (exempt) (75,000) Chargeable estate 828,500 Tax At nil (nil band used) nil At 40% 828, ,400 ACF6EFM13(D) Suggested solutions 17

30 18 ACF6EFM13(D) Suggested solutions

31 ACF6EFM13(D) Suggested solutions 19

32 BPP House, Aldine Place, London W12 8AA Tel: (for orders within the UK) Tel: +44 (0) Fax: +44 (0) ACF6EFM13(D) Suggested solutions