Accounting Technicians Ireland 1 st Year Examination: August 2017 Paper: TAXATION (Northern Ireland)

Transcription

1 Accounting Technicians Ireland 1 st Year Examination: August 2017 Paper: TAXATION (Northern Ireland) Monday 21 August a.m. to p.m. INSTRUCTIONS TO CANDIDATES PLEASE READ CAREFULLY For candidates answering in accordance with the law and practice of Northern Ireland. Candidates should answer the paper in accordance with the appropriate provisions up to and including the Finance Act The provisions of the Finance Act 2017 should be ignored. Allowances and rates of taxation to be used by candidates, are set out in a separate booklet supplied with the examination paper. Answer ALL THREE QUESTIONS in Section A, and ANY TWO of the THREE questions in Section B. If more than TWO questions are answered in Section B, then only the first two questions, in the order filed, will be corrected. Candidates should allocate their time carefully. All workings should be shown. All figures should be labelled as appropriate e.g. s, units etc. Answers should be illustrated with examples, where appropriate. Question 1 begins on Page 2 overleaf. The following insert is enclosed with the paper: Tax Reference Material Page 1 of 8 Taxation (NI) (TXN) A2017

2 SECTION A Answer ALL THREE questions in this Section QUESTION 1 You have been asked to help complete the payroll computations for BM Plants, a small garden centre, who have yet to acquire the necessary relevant payroll software. The three employees are Hannah, Ilan & Jai and their details up to week 37 for 2016/17 are as follows: Hannah Ilan Jai Cumulative Pay to Week 36 23, ,000 16, Pay in Week Overtime NIL Pension Note 1 Note 2 Note 1 Child Care Vouchers 55 NIL 55 Give-as-you-earn Payroll Deductions Cumulative Tax to Week 36 2, , Tax Code 1015L BR K23 Note 1: BM Plants facilitate pension contributions via the payroll to a group pension scheme. Both Hannah and Jai have been long-standing members of this scheme and deduct 6.5% of their gross salary (including overtime payments) to this scheme. Note 2: Ilan, aged 59, took an early retirement package from the civil service and now, being a keen gardener, is happy to work part-time for BM Plants. Since Ilan is also in receipt of a civil service pension, he has been on a BR code since starting to work for the company in week 33. Privately, Jai keeps some allotments and has started selling the fruit and vegetables that she grows there at various weekend farmers markets. This activity has begun to realise Jai a modest income and the resultant income tax liability for 2015/16 is being settled via a coding notification hence her K code for 2016/17. Required: (i) Calculate all income tax and national insurance deductions (primary and secondary) for Hannah, Ilan & Jai for week 37. Please take care to show your workings clearly. (16 Marks) (ii) Employers may be penalised for failure to submit necessary PAYE returns (EPS, FPS for example) unless they can provide a reasonable excuse. Note TWO circumstances which would be considered a reasonable excuse and ANY TWO circumstances which are NOT considered reasonable excuses. (4 Marks) Total:20 Marks Page 2 of 8 Taxation (NI) (TXN) A2017

3 QUESTION 2 Kayleigh-Ann is a senior oil and gas engineer whose company, Clean Burn Limited, pay her a basic annual salary of 78,000. On 15 th March 2017 she received a profit related bonus of 7,850. Kayleigh-Ann pays 7.5% of her basic salary (i.e. she does not treat her bonus payments as pensionable income) into the company pension scheme (this is dealt with under net pay arrangements). During 2016/17, Kayleigh-Ann paid income tax of 20,400 through the PAYE system. Kayleigh-Ann moved into a company owned apartment in July 2014 and has been living there ever since, paying a nominal rent of 50 per month. This apartment cost the company 210,000 in 2011 and has since been valued at 195,000. For 2016/17, the apartment has a rateable value of 1,600 and the company also pay for all rates & electricity in respect of the apartment at a cost of 1,250 in 2016/17. Clean Burn Limited provide Kayleigh-Ann with a company car (Co 2 emissions: 187 grams/kilometre, list price 22,000) and pay for all her diesel consumption. The company extended Kayleigh-Ann an interest-free loan of 18,000 on 6 th May This loan was used immediately to write off another personal debt and Kayleigh-Ann was able to repay 6,000 of the loan to the company on 5 th October Clean Burn limited had bought a tablet computer at a cost of 600 and provided this for Kayleigh-Ann s use at the beginning of 2015/16. The company offered to sell this to Kayleigh-Ann on 6 th April 2016 for 150 (when its market value was 325), an offer which Kayleigh-Ann took up. Kayleigh-Ann makes regular charitable donations (75 per month during 2016/17). Kayleigh-Ann also received 1,100 interest and 1,890 dividends during 2016/17. Required: Calculate Kayleigh-Ann s income tax liability for 2016/17. Please show your workings carefully and note that you may pro-rata, where necessary, by reference to whole months in relevant tax years. Total:20 Marks Page 3 of 8 Taxation (NI) (TXN) A2017

4 QUESTION 3 Review the following who have all recently commenced to trade: a. Kerry commenced to trade on 1 st July 2014 and prepared accounts for the year to 30 th June 2015 and 30 th June The adjusted profits were as follows: Year to 30/06/2015: 19,776 Year to 30/06/2016: 20,148 b. Liam commenced to trade on 1 st May 2014 and prepared his first set of accounts for the period to 31 st December 2014, 31 st December 2015 and 31 st December The adjusted profits were as follows: Period to 31/12/2014: 15,888 Year to 31/12/2015: 25,380 Year to 31/12/2016: 25,560 c. Martin commenced to trade on 1 st June 2014 and prepared accounts for the period to 31 st July 2015 and 31 st July The results were as follows: Period to 31/07/2015: 25,368 Year to 31/07/2016: 21,912 d. Nigel commenced to trade on 1 st March 2014 and prepared accounts to 31 st May 2015 and 31 st May These results are as follows: Required: Period to 31/05/2015: 35,430 Year to 31/05/2016: 30,360 For each of the above traders, show: (i) ALL the relevant tax years in which they will be assessed to income tax in respect of the above profits. (ii) (iii) The assessable profits in each of these tax years. Any overlap profits which may arise for each trader. (4 Marks) (12 Marks) (4 Marks) Total: 20 Marks Please show your workings carefully and note that you may pro-rata, where necessary, by reference to whole months in relevant tax years or basis periods, and not necessarily by reference to the number of days in tax years or basis periods. Page 4 of 8 Taxation (NI) (TXN) A2017

5 SECTION B Answer ANY TWO of the Three questions QUESTION 4 (i) Erin s business has not expanded as much as she would have liked with turnover having remained relatively low. She is entitled to de-register her business with respect to VAT and has decided to do so at the end of March As of the end of March 2017 her inventory is valued at 3,780 and sundry equipment at 6,240 both figures given net of VAT. On acquisition, Erin had made an input VAT claim in respect of all of these assets. Required: Calculate any VAT liability arising as a consequence of Erin s decision to deregister and note if your answer would differ if the total value of the above assets (net of VAT) were 4,000. (4 Marks) (ii) For quarter ended 31 st March 2017, Joe makes net taxable supplies of 36,000 and exempt supplies of 4,000. Input VAT directly attributable to taxable supplies is 1,158 and on goods which are directly attributable to the exempt supplies, input VAT is 389. Un-attributable input VAT is 5,880. Required: Calculate the amount of input VAT which Joe can reclaim for quarter ended 31 st March Note: for the purposes of your answer you do NOT need to consider the simplified de minimis tests. (4 Marks) (iii) Maggie is registered for VAT using the standard invoice basis. One of her customers has an outstanding unpaid invoice and she is concerned both for the recoverability of this debt and about the fact that the associated output VAT has been included in a VAT return some time ago. Required: Outline any three of the four conditions that would have to apply in order for Maggie to be able to reclaim bad debt relief in respect of the above invoice. (4 Marks) (iv) John is registered for VAT using the standard invoice basis. In the month of April 2017 John lodges 3,875 into his business bank account from his cash takings after having made (gross) cash payments of 1,086 for sundry goods & bills (all used in the business) and having taken 3,055 as drawings from the total of cash takings. In addition, non-cash sales were 4,500 (gross) in April. Required: Calculate the VAT liability for John in respect of his sales & purchases for the month of April (4 Marks) (v) In order to simplify VAT administration for small businesses, eligible businesses may (subject to conditions) operate what is known as the flat rate scheme. Required: Briefly outline how the flat rate scheme operates and the conditions that must apply for the business to be eligible to operate it. (4 Marks) Total: 20 Marks Page 5 of 8 Taxation (NI) (TXN) A2017

6 QUESTION 5 When answering all parts of this question, please take care to show your workings carefully. (i) Godfrey is single; earning 26,000 p.a. (he has been in the same job for some years). In 2015/16 he earned 1,000 doing miscellaneous jobs and wants to settle this tax liability through adjustment to his tax code for 2016/17 (having made the relevant notifications to HMRC by the appropriate date). Required: Indicate Godfrey s new tax code for 2016/17, adjusted so as to collect his unpaid tax liability from 2015/16. (3 Marks) (ii) Seannin is supplied with a company car (1.8L LPG vehicle) but the company do NOT pay for her fuel. When Seannin uses her company car for business purposes, Seannin s employer reimburses her for noncommuting (business) journeys. In 2016/17 Seannin submitted mileage claims totalling 2,673 and was reimbursed 415 for this travel. Required: Calculate any excess mileage paid to Seannin for 2016/17 and, if any, the amount of Class 1A NIC payable by her employer. Note: you are NOT required to calculate any benefit in respect of the supply of a company car to Seannin for 2016/17. (3 Marks) (iii) Since 6/4/2016, Winston has been employed at a monthly salary of 4,000. He makes company pension contributions at the rate of 7.5%. Up to month 4, inclusive, he has paid payroll tax (PAYE) of 3,992. In month 5, his employer received notification of a new tax code for Winston of K725. Required: Calculate the tax payable (PAYE) by Winston for month 5 of 2016/17. (5 Marks) (iv) Max rents an investment property through a letting agent who charges a fee of 10% of gross rents. Throughout 2016/17 the property was fully let at a monthly rent of 750. Max pays the rates on this property (1,000 in 2015/16 and 1,200 in 2016/17). He also pays the buildings insurance for this property (400 for the 12 months to 31/12/2016 and 500 for the 12 months to 31/12/2017). Max replaced some furniture in 2016/17 at a cost of 695 and had an ongoing programme of redecoration for the property for 2016/17. The total cost of this work to 5/4/2017 was 1,100 although max had only paid 75% of the monies owed to the decorator by 5/4/2017. Required: Calculate the taxable rental income assessable on Max for 2016/17. (4 Marks) (v) Ultan s gross salary was 41,000 in 2016/17 and he was a member of the company pension scheme, contributing 6.5% of his gross salary to the scheme. In 2016/17, Ultan also received interest of 2,000 and dividends of 3,950. Required: Calculate Ultan s tax liability for 2016/17. (5 Marks) Total: 20 Marks Page 6 of 8 Taxation (NI) (TXN) A2017

7 QUESTION 6 Gordon is self-employed, owning & running his own car service & repair business. Gordon lives in an apartment above his repair shop and shares many utility & related bills. He estimates that his apartment represents 25% of the floor area of the entire building. Gordon s profit and loss account to 31 st March 2017 is as follows: Note Revenue 1 364,995 Less: Cost of Goods Sold: Opening Inventory 23,596 Purchases 2 183,876 Closing Inventory (19,568) (187,904) Gross Profit 177,091 Add: Other Income 3 6, ,391 Less: Expenses Salaries & Wages 4 85,821 Property Expenses 5 46,189 Power 6 7,003 Vehicle Expenses 7 16,918 Sundry Expenditure 8 7,410 (163,341) Net Profit 20,050 1 The sales figure includes the following: Customer Invoice # ,850 This invoice was disputed by the customer and Gordon agreed to refund the customer. Gordon s girlfriend, Glenda, who acts as a book-keeper, issued a credit note for 750 on 28 th March. This credit note is NOT reflected in the income statement (above). 2 The purchases figure includes the following: Parts 685 The parts (685, above) relate to sundry items (batteries, exhaust etc.) acquired by Gordon solely for his family members & relatives who were not charged for these parts. 3 Other income is comprised as follows: Income tax rebate (re: 2014/15) 1,200 Tenant Income 5,100 6,300 Gordon rents a spare room in his apartment to a lodger. This room was fully let throughout 2016/17. 4 Wages & Salaries are comprised as follows: Staff Wages ( 6 full-time members of staff) 49,920 Associated NIC costs 6,889 Drawings (Gordon) 25,000 Book-keeping 3,200 Christmas party 115 Accountant ,821 Gordon s girlfriend, Glenda, comes in on Saturday mornings and deals with book-keeping, invoicing & payroll. Gordon could not afford a proper staff party. The expense, above, is the cost of some take-away meals & drinks from a local off licence. The accounts fee is broken down as: Gordon s tax return (225), Processing VAT returns (472). QUESTION 6 CONTINUES ON THE NEXT PAGE Page 7 of 8 Taxation (NI) (TXN) A2017

8 5 Property expenses are comprised as follows: Rent 15,600 Rates 3,665 Replacement hydraulic lift 15,000 Leasing (air compressor) 1,869 Equipment depreciation 1,500 Employers liability insurance 4,995 Contents insurance 3,560 46,189 The contents insurance is for the entire premises. Insurance for the apartment contents represents 10% of this bill. 6 The power expense comprises: Electricity (for the whole of the premises) 1,252 Installation of gas boiler 3,000 Heating (gas) 2,356 Kindling fuel 395 7,003 The gas supply heats the entire premises. The kindling fuel is used in a wood burning stove which Gordon had installed in his apartment. 7 Vehicle expenditure comprises: Lease expenses (pick-up truck) 3,228 Cost of business van replacement parts 960 Vehicle running expenses: Fuel 4,080 Road Tax 410 Insurance 1,250 5,740 Vehicle Depreciation 2,250 Car Lease 4,740 16,918 The fuel expense is that for ALL vehicles. The portion of this expense which relates to business vehicles is 70%, the balance being accounted for by fuel consumed for Gordon s (leased) car. Gordon s car represents 185 of the total road tax bill & 500 of the total insurance expense. Gordon leases his own car and this expense is borne by the business. The vehicle has a CO 2 emissions rating of 160 grams/km. Gordon estimates that non-business use of this vehicle is 75%. 8 Sundry expenses are comprised as follows: Fines 500 Trade magazine 150 Advertising 2,375 Charitable donation 125 Telephone (landline) 580 Mobile (telephone) 1,080 Increase in general bad debt provision 650 VAT accrual 1,950 7,410 The fine relates to an incident when the local authority caught Gordon letting old engine oil leak into a local stream. After this incident, Gordon made the charitable donation to a local environmental charity. The advertising expense comprises leaflets/flyers (300), 500 calendars given to customers, each carrying a prominent business advert (1,475) and advertising in local newspapers (600). The landline (telephone) is situated in the garage office. Private use is minimal and estimated to represent only 5% of calls. The mobile telephone element relates to two phones, of equal expense, shared by Gordon & Glenda. Gordon claims that only 10% of his mobile phone use relates to business use. Glenda does not consider any of her mobile phone use to be for business purposes. Required: Calculate the adjusted profit for Gordon for the period to 31 st March Please show your workings carefully. Note: an attempt at a solution employing anything other than a standard add-back approach will NOT be given any credit. Total: 20 Marks Page 8 of 8 Taxation (NI) (TXN) A2017

9 Taxation Northern Ireland 1 st Year Examination August 2017 Solutions, Examiners Comments & Marking Scheme

10 NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians Ireland. They are intended to provide guidance to students and their teachers regarding possible answers to questions in our examinations. Although they are published by us, we do not necessarily endorse these solutions or agree with the views expressed by their authors. There are often many possible approaches to the solution of questions in professional examinations. It should not be assumed that the approach adopted in these solutions is the ideal or the one preferred by us. Alternative answers will be marked on their own merits. This publication is intended to serve as an educational aid. For this reason, the published solutions will often be significantly longer than would be expected of a candidate in an examination. This will be particularly the case where discursive answers are involved. This publication is copyright 2017 and may not be reproduced without permission of Accounting Technicians Ireland. Accounting Technicians Ireland, Page 2 of 22

11 1 st Year Examination: August 2017 Taxation NI Suggested Solutions and Examiner s Comments Students please note: These are suggested solutions only; alternative answers may also be deemed to be correct and will be marked on their own merits. Statistical Analysis By Question Question No Average Mark (%) 46% 45% 35% 27% 48% 43% Nos. Attempting Statistical Analysis - Overall Pass Rate 58% Average Mark 40% Range of Marks and over 1 Total No. Sitting Exam 29 Total Absent 14 Total Approved Absent 5 Total No. Applied for Exam 48 For students who are registered from 2016 onwards the breakdown of subject level awards can be found below: Pass 50-64% Subject Merit % Distinction 80+% General Comments: The general standard of paper presented at this sitting was quite disappointing, although perhaps this is all the more acutely felt in the context of the excellent overall standard for the summer paper. That is not to say that there were not some very good papers, which there were, but it continues to puzzle when some so obviously ill-prepared candidates present for an examination one in which they would have undoubtedly fared so much better had they applied themselves to a recommended course of study. As always, a grasp of the basics will pay dividends in this foundational examination. Page 3 of 22

12 Examiner Comments on Question One This was a standard payroll taxes question which should not have presented any difficulties. The main issue (where any existed) was a lack of understanding of the cumulative application of the personal allowance (free pay), tax reducers (i.e. pension contributions) and tax bands in the context of any tax paid to date. It must be said that this is relatively basic material and a question type which is a staple of this examination there really should be no excuses for poor performance in this question. Solution 1 Marks (i) Pay to week 36 23, , , Wages in week Pension 1, , CCV 2, , Payroll Deductions Additional Pay: 239 x 37/ Free Pay: 10,159 x 37/52 7, BR Code - Cum. Taxable Pay to Week 37 12, , , Note: 32,000 x (37/52) = 22, Page 4 of 22

13 Taxed as Per: 12, % 2, , % , % 2, Less: Tax Paid to Date 2, , Tax Due Week Primary NIC 12% ( % % ( Secondary NIC ( ) x 13.8% ( ) x 13.8% ( ) x 13.8% (2 mks. Each, max. 5 marks) Toal = 24 Total Marks. x 2/3 to get marks /16. Page 5 of 22

14 (ii) Exam candidates could list the following which would be considered a reasonable excuse: Death or serious illness of the employer, or close relative, around the submission deadline, and; System failure due to fire, flood or IT difficulties. 1 Mark each = 2 marks Any TWO of the following would NOT be considered a reasonable excuse: Pressure at work; Relying on 3 rd party for submission; Lack of information; Ignorance of the law; HMRC did not send a reminder; and Cash flow difficulties. Any 2 for 1 mark each = 2 marks Page 6 of 22

15 Examiner Comments on Question Two This question interrogated candidate s knowledge of income tax computations for a well-paid corporate employee in receipt of bonus, benefits and so forth. The standard of responses to this question placed them among the better answered questions on this paper. Where mistakes were made they related to an inability to apply the basic rules in respect of certain benefits such as living accommodation, loans or transferred assets. Some very messy and very hard to follow solutions were presented! Solution 2 W1 Salary 78, Pension 7.50% -5, Bonus 7, , W2 Accommodation Basic Benefit Rateable Value 1, Ancilliary Benefits 1, Rent , Additional Benefit Cost Threshold 210, , , % 4, , W3 Car 22, % 8, W4 Fuel 22, % 8, Van (no taxable bonus) , Page 7 of 22

16 W5 Loan Average Opening Balance 18, Closing Balance 12, Average Method 15, /12 3% Accurate Method 18, /12 x 3% , /12 x 3% W6 Tablet Computer /16 20% /17 Cost Prior Ass'mnt Paid Mkt Value Paid W7 Benefits Accommodation W2 6, Car W3 8, Fuel W4 8, Loan W Tablet W , Page 8 of 22

17 W8 Charitable Donation Gross 1, W9 B/R Band 32, , , Page 9 of 22

18 Kayleigh-Ann Income Tax Computation 2016/17 Earned Interest Dividends Total Salary (W1) 80, , Benefits (W7) 23, , Interest 1, , Dividends 1, , , , , , Basic PA 11, ANI Total Income 106, Gross Gift Aid Donations - 1, , Threshold - 100, Excess 5, /2 Excess 2, Restricted PA - 8, , Taxable Income 95, , , , Page 10 of 22

19 Taxed As Per: Basic Rate Band (W9) 33, % 6, Higher Rate 61, % 24, , Interest 1, PSA % Dividends , PAYE - 20, O/S Balance of Tax 11, Layout 40 Total = 40. Divide by 2 to get marks out of 20 Page 11 of 22

20 Examiner Comments on Question Three This was a standard basis periods question. Setting aside the one or two very good answers, for a question which appears regularly in this examination, the standard of answers presented was, frankly, disappointing. There didn t appear to be any common thread to the poor standard of answers other than an apparent lack of appreciation of the basic rules this simply won t reap any rewards for sitting candidates! Solution 3 YOA Basis Period Calculation Assessment 9/12 x Kerry 2014/15 1/7/2015-5/4/ ,776 14, /16 Y/E 30/6/ , /17 Y/E 30/6/ , Overlap 1/7/2015-5/4/2016 9/12 x 19,776 14, Page 12 of 22

21 Liam 2014/15 1/5/ /12/ , /1/2015-5/4/2015 3/12 x 25,380 6, , /16 Y/E 31/12/ , /17 Y/E 31/12/ , Overlap 1/1/2015-5/4/2015 3/12 x 25,380 6, Martin 2014/15 1/6/2014-5/4/ /16 12m to 31/7/ /14 x 25,368 18, /14 x 25,368 21, /17 Y/E 31/7/ , Overlap 1/8/2014-5/4/2015 8/14 x 25,368 14, Page 13 of 22

22 Nigel 2013/14 1/3/2014-5/4/2014 1/15 x 35,430 2, /15 6/4/2014-5/4/ /16 12m to 31/5/ /15 x 35,430 28, /15 x 35,430 28, /17 Y/E 31/5/ , Overlap 1/6/2014-5/4/ /15 x 35,430 23, (i) 4 x 1 for correctly identifying YOA in each of 4 cases. 4 (ii) 4 x 3 for correctly identifying assessable amounts in each tax year and in each case. 12 (iii) 4 x 1 for correctly identifying overlap profits in each case Page 14 of 22

23 Examiner Comments on Question Four This was a short-form, multi-part VAT question. Candidates fared marginally better with the VAT implications of de-registration (part i) and some aspects of the calculation of (gross!) VAT-able receipts (part iv) but often became very confused with a basic partial exemption calculation and basic rules relating to bad debt relief and the flat-rate scheme. Solution 4 (i) Erin will be liable to repay VAT on a deemed supply of these goods based on their value at the time of deregistration. This will result in a VAT repayment of (3, ,240) x 20% = 2,004. (3 marks) If the total value of the assets were 4,000, the VAT on the deemed supply would be 800. Since this is less than 1,000, it would not be payable. (1 mark) (ii) The relevant fraction is: 36,000 / (36, ,000) = 90%. (1) Refundable input VAT is 1,158 + (90% x 5,880) = 6,450. (1) Non-refundable input VAT is (10% x 5,880) = 977. (1) Clearly, non-refundable input VAT is less than the de minimis amount AND less than 50% of total input VAT. Subsequently Joe may reclaim ALL input VAT = 1, ,880 = 7,427. (1 mark) (iii) Bad debt relief may be claimed if: The supply was made for a consideration and the output VAT has been accounted for to HMRC; The payment was due at least six months ago; The bad debt has been written off in the trader s books; The claim for relief is made within four years and six months from the date payment was due. (Any three for 4 marks, deduct 1 mark for each missing) Page 15 of 22

24 (iv) Total sales = (3, , ,055) + 4,500 = 12,516. (1) Output VAT = 12,516 / 6 = 2,086. (1) Input VAT = 1,086 / 6 = 181. (1) VAT liability = 2, = 1,905. (1) (v) Broadly, small businesses operating the flat rate scheme continue to charge (and pay) VAT as normal but calculate their VAT liability based on a (reduced) flat rate percentage of their VAT inclusive turnover only (ignoring input VAT). The exact flat rate applied depends on the nature of the business. (2) Small businesses operating such a scheme may still reclaim VAT on the acquisitions of individual capital assets costing more than 2,000 (gross). To be eligible for the flat rate scheme, the business must have turnover of less than 150,000 (net)*, be up-to-date with their VAT returns* and not have been convicted of a VAT offence in the previous 12 months*. Once operating the scheme, the small business must leave if the value supplies of their supplies exceeds (or is expected to exceed in the next 30 days) 230,000*. * any two for 1 mark each. Page 16 of 22

25 Examiner Comments on Question Five This question was a standard short-form, multi-part general knowledge question where the emphasis was on computational responses. In section B, this question was a much more popular choice than question 4 and the quality of responses were better than those for the VAT question. Some candidates became quite confused with the adjustment to coding (part i), the application to allowable mileage rates for a company car along with the calculation of class 1A NIC rates (part ii) and very few candidates realized that part (iii) was testing if they knew that k-code payroll deductions had a monthly upper limit (measured against monthly salary). Parts (iv) & (v) produced some of the better responses to this question. Solution 5 (i) Underpaid Tax PA 11, Less: Underpaid Tax (200 / 0.8) - 1, Net Allowance 10, New Tax Code 1000L 0.5 Page 17 of 22

26 (ii) Reimbursed mileage Allowed mileage Excess Class 1A NIC (iii) Salary to Month 5 18, add: K-Code 3, Taxable 21, Taxed: 13, % 2, , % 3, , , Tax Paid to Date - 3, Tax Liability 1, Since this liability exceeds 50% of salary net of pension contributions, the deduction is restricted to 1, Total = 10. /2 to get marks / 5 Page 18 of 22

27 (iv) Total Rent 9, (1) less: Expenses Letting Agent (1) Rates 1, (1) Insurance (1.5) (1.5) Replacement Furniture (1) Decoration 1, , (1) Taxable Rent 4, Total = 8. / 2 to get marks /4. (v) Salary 41, , Pension - 2, , Interest 2, , Dividends 3, , , , , , PA 11, , Taxable Income 27, , , , Page 19 of 22

28 Taxed As Per: 27, % 5, PSA: % - 1 1, % , Dividends 3, % - 1 5, Total = 10. Divide sum by 2 to get marks out of 5. Page 20 of 22

29 Examiner Comments on Question Six This was a standard adjusted profits question which interrogated candidate s knowledge of allowable/non-allowable expenditure and taxable/non-taxable business income. The question contained few surprises and was among the better answered. It is acutely disappointing to note that a significant minority of candidates, despite clear instruction to the contrary on the exam paper, are still insisting on trying to answer this question by reconstructing the income statement. Please note that, from a candidate s perspective, this continues to be a fruitless exercise! Solution 6 Net Profit per Accounts 20, less: non-trading income: Tax rebate 1, Tenant Income 5, , less: Unclaimed expenditure Credit note add: privately consumed goods Parts Page 21 of 22

30 add: non-deductible expenditure Drawings 25, Accountant Rent 3, Rates Depreciation (equipment) 1, Hydraulic Lift 15, Contents insurance Electricity Gas boiler 3, Heating Kindling fuel Fuel Road Tax Insurance Vehicle depreciation 2, Lease (15% restriction) Lease (further restriction) 3, Fines Telephone Mobile (Gordon) Mobile (Glenda) General Bad Debts VAT accrual 1, , Adjusted Profits 76, Page 22 of 22