UNIVERSITY OF BOLTON INSTITUTE OF MANAGEMENT BA (HONS) ACCOUNTANCY SEMESTER ONE EXAMINATION 2017/18 ADVANCED TAXATION MODULE NO: ACC6002

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1 UNIVERSITY OF BOLTON [IOM11] INSTITUTE OF MANAGEMENT BA (HONS) ACCOUNTANCY SEMESTER ONE EXAMINATION 2017/18 ADVANCED TAXATION MODULE NO: ACC6002 Date: Wednesday 17 th January 2018 Time: 10:00 13:00 INSTRUCTIONS TO CANDIDATES: There are FIVE questions on this paper. SECTION A consists of TWO questions, answer ALL questions. SECTION B consists of THREE questions, answer ONLY TWO questions. Please refer to Tax tables for rates & allowances. This is a closed book exam. You must hand in the exam paper with your answer booklet.

2 Page 2 of 7 Institute of Management BA (Hons) Accountancy Semester One Examination 2017/2018 Advanced Taxation Module No. ACC6002 SECTION A - Answer ALL Questions QUESTION 1 You work in the tax department of Ahmad & Co and have recently been asked to calculate the capital gains tax payable by Suhail Khan for the tax year ended 5 April You have been provided with the following information and assume Suhail pays capital gains tax at the higher rates of either 20% and/or 28%. Suhail has capital losses b/f from the tax year ended 5 April 2016 of 3,000. (i) On 15 February 2017 Suhail sold 630 shares at 3 each in Diamond plc. Prior to the sale of shares the following transactions had taken place: Date No of shares Cost ( ) 21 July May February , May In July 2016, the company made a 1 for 20 rights issue at 1.50 per share and Suhail took up this offer of these shares. Assume that no further shares were acquired within the following 30 days. (ii) Suhail sold his house in in Bolton on 31 May 2016 for 385,000 incurring incidental costs of disposal of 6,000. He originally acquired the house on 1 June 1997 for 125,000 and lived there until 31 March 1998 when he left the UK and took up a job in Dubai where he worked until 31 December On 1 January 2000 he returned to the UK where he remained living in the house until 30 June 2013, after which he lived with his son and daughter in law. During periods when the property was not occupied by Suhail, it was never let out to tenants. Question 1 continues over the page PLEASE TURN THE PAGE

3 Page 3 of 7 Institute of Management BA (Hons) Accountancy Semester One Examination 2017/2018 Advanced Taxation Module No. ACC6002 Question 1 continued. (iii) (iv) On 5 September 2016 Suhail sold 25,000 of Premium Bonds that he had held for many years and also his car for 13,500. On 6 October 2016 Suhail also sold his sole trader business (a takeaway) and realised a chargeable gain of 450,000. Please advise Suhail whether or not he can claim Entrepeneur s Relief (ER). Required: Calculate the capital gains tax payable by Suhail for the tax year 2016/17. (Total 30 marks) Question 2 You work in the tax department of Emerald & Co Accountants and the following clients require your advice in relation to VAT: (a) Amanda Jones Amanda Jones has recently set up her own business, which provides bespoke training courses to corporate clients. The business is registered for VAT. You are Amanda s accountant and have been asked to calculate the VAT payable for the year ended 31 December The following information has been provided: (i) (ii) (iii) (iv) (v) (vi) Amanda s net sales revenue for the year were 125,000. All of the turnover relates to taxable supplies and all customers are VAT registered. Amanda purchased a computer and printer which she uses in the business on 12 January 2016 for 5,500 inclusive of VAT. Office rent was 2,500 per quarter (Landlord is not VAT registered). The gas and electricity bills amounted to 500 per quarter inclusive of VAT. Amanda used a car for her business which she bought on 5 January 2016 for 22,000 including VAT. She also spent 250 inclusive of VAT on maintenance for the year ended 31 December A customer of Amanda s ceased trading on 1 October 2016 owing 350 plus VAT. Amanda had invoiced the customer on 1 February Question 2 continues over the page.

4 Page 4 of 7 Institute of Management BA (Hons) Accountancy Semester One Examination 2017/2018 Advanced Taxation Module No. ACC6002 PLEASE TURN THE PAGE. Question 2 continued. Required: Calculate the VAT payable by Amanda for the year ended 31 December Briefly advise Amanda on the cash accounting scheme and whether she can join. (20 marks) (b) Andy Smith Andy Smith provides you with the following information in relation to his business for the Quarter ended 31 December 2016: Standard-related supplies (including VAT) 325,000 Zero- rated supplies 85,000 Exempt supplies 435,000 Input tax for the quarter is 115,000 attributed as follows: Attributed to taxable supplies 35 % Attributed to exempt supplies 40 Unattributed 25 Required: Calculate the VAT payable for the quarter ended 31 December 2016 (10 marks) Total 30 marks END OF SECTION A

5 Page 5 of 7 Institute of Management BA (Hons) Accountancy Semester One Examination 2017/2018 Advanced Taxation Module No. ACC6002 PLEASE TURN THE PAGE. SECTION B: Answer TWO questions ONLY Question 3 Fred Smith died on 12 July 2016, leaving an estate valued at 850,000. None of the transfers below made on his death were exempt from IHT. Fred made the following transfers during his lifetime: 02 June 2008 Gift to relevant property trust (tax paid by Fred) 115,000 1 May 2009 Gift to daughter 190,000 5 August 2009 Gift to son 235, November 2010 Gift to relevant property trust (tax paid by trustees) 435,000 Fred was not married or in a civil partnership and was single at the time of his death. His entire estate was left to his children. Fred s funeral expenses were 4,000. Calculate the inheritance tax payable as a result of Fred s death. (20 marks) PLEASE TURN THE PAGE.

6 Page 6 of 7 Institute of Management BA (Hons) Accountancy Semester One Examination 2017/2018 Advanced Taxation Module No. ACC6002 Question 4 A Ltd owns 70% of the issued ordinary share capital of B Ltd, 30% of the issued share capital of C Ltd and 80% of the issued share capital of D Ltd. All four companies are UK resident. The results for each company are as follows: A Ltd B Ltd C Ltd D Ltd Trading profit/(loss) 420,000 (130,000) 70,000 (90,000) Dividends paid in the year nil 60,000 36,000 54,000 (a) Identify which companies from B, C and D Ltd are related 51% group companies of A Ltd. Also explain how A Ltd is affected by having related companies in its group for tax purposes. (5 marks) (b) Explain how the corporation tax computation of A Ltd for the year ended 31 March 2017 is affected by the fact that it receives dividends from the other three companies. (8 marks) (c) Calculate the maximum group relief that can be claimed by A Ltd for the year ended 31 March (3 marks) (d) Assuming that maximum group relief is claimed, calculate the corporation tax liability of A Ltd for the year ended 31 March 2017 and state the date the tax is due for payment. (4 marks) Total 20 marks PLEASE TURN THE PAGE.

7 Page 7 of 7 Institute of Management BA (Hons) Accountancy Semester One Examination 2017/2018 Advanced Taxation Module No. ACC6002 Question 5 Sapphire Ltd disposed of the following chargeable assets in the year ended 31 March 2017: (i) (ii) (iii) (iv) (v) In February 2017 a vintage car for 235,000 which had been used by the managing director and originally purchased in January 2009 for 185,000. In October 2016 the company sold its office building for 525,000. The building had been acquired in January 1979 for 105,000 and was extended in September 2000 for 50,000. The market value of the building at 31 st March 1982 was 125,000. In May 2016, a plot of land for 65,000 which has previously been used for trade purposes. The land was originally bought in November In August 2016 the company sold gilt edged securities for 95,000 which were originally bought in January 2008 for 65,000. In May 2016, plant and machinery was sold for 22,500 and was originally bought in May 2010 for 12,000. Capital allowances had been claimed on this asset. Sapphire Ltd had capital losses b/f of 2,500 and also capital losses in the current year from other chargeable disposals of 5,500. Required: Calculate the chargeable gain or allowable loss on each of the disposals and then the overall chargeable gain or loss which should be included in the total profits for the year ended 31 March 2017 (20 marks) END OF QUESTIONS

8 Lymer & Oats 2016/17 Tables of tax rates and allowances The current rates and allowances for income tax, corporation tax, capital gains tax, inheritance tax and other taxes are set out below. Income tax rates Non-savings Savings Dividends 0 5,000 * 0%* 0%** 0 (or 5,000) 32,000 20% 20% 7.5%** 32, ,000 40% 40% 32.5% Over 150,000 45% 45% 38.1% * 0% rate on savings only available up to 5,000 of savings income if non-savings income does not exceed this sum. In addition, a 1,000 personal savings allowance is available to basic rate taxpayers ( 500 for higher rate taxpayers and nil for additional rate taxpayers). **Dividend allowance of 5,000 Personal income tax allowances 2016/ /16 Increase Income tax allowances: Personal allowance 11,000 10, Income limit: personal allowance 100, ,000 0 Marriage allowance 1,100 1, Dividend allowance 5,000 Personal savings allowance: Basic rate taxpayers 1,000 Higher rate taxpayers 500 Blind person s allowance 2,290 2,290 0 Copyright: AccountingEducation.com Ltd Taxation: Policy and Practice (22nd 2016/17 edition) by A. Lymer & L. Oats. Permission for academic use is granted. For any other purpose permission to use this document should be sought from the publishers see While best endeavours are used to obtain and report accurate information, the publisher accepts no liability of any form for the accuracy or otherwise of this information.

9 Lymer & Oats UK Tax Rates and Allowance 2016/17 Car and fuel benefits in kind Car benefit charge: round down to find the correct percentage: CO 2 Taxable % CO 2 Taxable % CO 2 Taxable % g/km Petrol Diesel g/km Petrol Diesel g/km Petrol Diesel 0(EV) Car fuel benefit charge 22,200 Van benefit charge 3,170 Van fuel benefit charge 598 Approved mileage rates Business Miles Allowance rate per mile Cars and vans 0 10,000 45p 10, p Motor cycles 24p Bicycles 20p Excess payments over these rates are taxable. Shortfalls can be claimed as tax relief by the employee. Income tax reliefs and incentives: annual limits 2016/ /16 Individual Savings Account (ISA) 15,240 15,240 Junior ISA 4,080 4,080 Help to buy ISA maximum saving 12,000 Child Trust Fund 4,080 4,080 Enterprise investment scheme (EIS) 1,000,000 1,000,000 Seed Enterprise investment scheme (SEIS) 100, ,000 Venture capital trust (VCT) 200, ,000 Social investment tax relief (SITR) 1,000,000 1,000,000 Employee shareholder status 2,000 2,000 Pension scheme allowances: Annual allowance 40,000 40,000 Lifetime allowance 1,000,000 1,250,

10 Lymer & Oats UK Tax Rates and Allowance 2016/17 National Insurance Contributions Item 2016/ /16 Class 1: Lower Earnings Limit LEL (per week) Primary (employees) Threshold (per week) Secondary (employers) Threshold (per week) Upper Earnings Limit UEL (per week employees only) Upper Secondary Threshold (per week <21yr old apprentices) (per week <25yr old apprentices) Employment allowance (per employer) 3,000 2,000 Employee s contributions 12% 12% ( 155pw to 827pw +2% over 827pw) Employer s Contribution Rates 13.8% 13.8% (all earnings over 156pw) Class 1A and 1B 13.8% 13.8% Class 2: Self employed Contribution (per week) Small Profits Threshold (per annum) 5,965 5,965 Class 3: Contribution (per week) (voluntary) Class 4: Contributions Upper Profits Limit 43,000 42,385 Contributions Lower Profits Limit 8,060 8,060 Contribution Rate 9.0% 9.0% ( 8,060pa 43,000pa then 2% over 43,000pa) Capital taxes: Individuals 2016/ /16 Increase /% Capital gains tax annual exempt amount Individuals, etc. 11,100 11,100 0 Capital gains tax standard basic rate 10%* 18% 8 Capital gains tax standard higher rate 20%* 28% 8 Entrepreneurs Relief limit 10 million 10 million 0 Entrepreneurs Relief rate 10% 10% 0 Inheritance tax threshold 325, ,000 0 (each if couple/partner) Inheritance tax rate 40% 40% 0 Lower rate (10%+ of estate left to charity) 36% 36% 0 * An 8% surcharge applies in respect of residential properties and carried interest. 3

11 Lymer & Oats UK Tax Rates and Allowance 2016/17 Corporation tax 2016/17 Band Rate %* *reduced for associated companies and/or for short accounting periods Note: an 8% surcharge applies to bank profit before carry forward losses. Corporation tax on chargeable gains: indexation allowance Retail prices index (January 1987 = 100.0) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

12 Lymer & Oats UK Tax Rates and Allowance 2016/17 VAT after 1 April 2016 after 1 April 2015 Standard Rate 20% 20% Reduced Rate 5% 5% Annual Registration Limit 83,000 82,000 De-registration Limit 81,000 80,000 VAT Fraction standard rate 1/6 1/6 Maximum turnover to join: Cash Accounting Scheme 1,350,000 1,350,000 Annual Accounting Scheme 1,350,000 1,350,000 Flat Rate Scheme (ex VAT) 150, ,000 Stamp Duty Land Tax Value of property ( ) Stamp duty rate (%) Residential property not buy to let buy to let up to 40, , ,000* , , , , , m remainder (over 1.5m) * 150,000 for not buy to let in disadvantaged areas. Value of property ( ) Stamp duty rate (%) Non-residential property up to 150, , ,000 2 over 250,000 5 Annual Tax on Enveloped Dwellings Value of property ( ) ATED charge ( ) 500,000 1,000,000 3,500 1,000,001 2,000,000 7,000 2,000,001 5,000,000 23,350 5,000,001 10,000,000 54,450 10,000,001 20,000, ,050 20,000, ,200 5

13 Lymer & Oats UK Tax Rates and Allowance 2016/17 Scottish Land and Buildings Transactions Tax Value of property ( ) LBTT rate % Residential property 0 145,000* 0 145, , , , , , over 750, Non-residential property 0 150, , ,000 3 over 350, Environmental taxes HMRC interest rates 2016/17 Landfill tax: Standard rate (per tonne) ( 82.60) Lower rate (inactive waste per tonne) 2.65 ( 2.60) Aggregates levy (per tonne) 2.00 ( 2.00) Climate Change Levy: Electricity 0.559p/kwh Natural Gas 0.195p/kwh LPG 1.251p/kg Insurance Premium Tax: Standard Rate 9.5%* Higher Rate (travel, appliances, some vehicles) 20% * Rising to 10% from 1 October 2016 Late Repayment Payment (%) (%) All taxes (unchanged since 29/9/09) Average Official rate for 2016/ % (These rates change occasionally see the HMRC website for details) 6

14 Lymer & Oats UK Tax Rates and Allowance 2016/17 Tax credits: Working tax credit Child tax credit Tapering Pension credit per year Basic element 1, Couple and lone parent element 2, hour element Disability element 2, Severe disability element 1, Childcare element: per week Maximum eligible cost for 2 or more children Maximum eligible cost for 1 child Max. percent of eligible costs covered 70% per year Family element Child element (each child) 2, Disabled child element 3, Severe disabled child element 1, Income thresholds & withdrawal rates First income threshold 6, First withdrawal rate 41% First threshold for child tax credit 16, entitlement only (where no WTC claimed) Income rise disregard 2, Income fall disregard 2, Standard Minimum income guarantee credit: (per week) Single Couple Capital: Amount disregard 10, Amount disregard care homes 10, Deemed income: 1 per week for every 500 (or part thereof) in excess of these amounts 7

15 Lymer & Oats UK Tax Rates and Allowance 2016/17 Personal benefit rates 2016/ /16 Basic Retirement Pension (per week): Single Person (based on own NIC) Single Person (based on spouse s NIC) Non-contributory (over 80 pension) New State Pension Child Benefit (per week from 5 April 2015): First Eligible Child Each Extra Child Guardian allowance Statutory Sick Pay (per week): normally receive 112 per week or more Statutory Maternity Pay (per week): Average Weekly Earnings of 112 or over Higher Weekly Rate (first 6 weeks) 90% of weekly earnings Standard Rate (remaining 33 weeks) Statutory Paternity/Adoption Pay (per week) Job Seekers Allowance (income based per week): Single Person (over 25) Married Couple (both over 18) National Living/Minimum Wage (per hour): ages 25 and over From April ages 21 to 24 (from Oct 16) 6.95 ages 18 to 20 (Development rate from Oct 16) 5.55 ages 16 to 17 (Young worker rate from Oct 16) 4.00 Apprentice rate (under 19 or in first year) 3.40 Employment & Support Allowance (per week): Single under 25 (first 13 weeks) Single 25 and over (first 13 weeks) Work related Activity Group (week 14+) Support Group (week 14+) Universal Credit (per month): Single under Single 25 and over Couple over Child element: First child Second/subsequent child Benefit Cap (per week) Single under 25 (no children) Single parent (children living with them) Single adult (no children living with them) These rates are selected from a complex list of benefits available based on personal circumstances and therefore are provided in basic outline only. For a full list of benefits see the website. 8

16 Lymer & Oats UK Tax Rates and Allowance 2016/17 Duty rates Duty Typical Item Cigarettes 16.5% of retail packet of 20 price per thousand Cigars /kg packet of 5 Hand rolling tobacco /kg 30g Beer 18.37p/litre pint 8.1p for low strength or an extra 5.48p for high strength apply Wine >22% abv 27.66/litre pure alcohol 15% 22%abv /litre 75cl bottle 5.5% 15%abv /litre 4% 5.5%abv /litre 1.2% 4%abv 85.60p/litre Sparkling wine 5.5% 8.5%abv /litre 75cl bottle 8.5% 15%abv /litre Cider/Perry Still 1.2% 7.5%abv 38.87p/litre 75cl bottle 7.5% 8.5%abv 58.75p/litre Sparkling 1.2% 5.5%abv 38.87p/litre 75cl bottle 5.5% 8.5%abv /litre Spirits 27.66/litre of 70cl bottle pure alcohol Fuel Duties (until 5 April 2017): Unleaded/Heavy oil (Diesel)/Bio-diesel & bioethanol 57.95p/litre Bio-diesel for non-road use 11.14p/litre LPG 31.61p/kg Other Natural gas (road fuel) 24.7p/kg Fuel Oil 10.7p/litre Aviation gasoline 37.7p/litre 9