Advanced Taxation Northern Ireland. Sample Paper 1 Questions & Suggested Solutions

Transcription

1 Advanced Taxation Northern Ireland Sample Paper 1 Questions & Suggested Solutions

2 NOTES TO USERS ABOUT SAMPLE PAPERS Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance to students and their teachers regarding the style and type of question, and their suggested solutions, in our examinations. They are not intended to provide an exhaustive list of all possible questions that may be asked and both students and teachers alike are reminded to consult our published syllabus (see for a comprehensive list of examinable topics. 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 only correct approach, particularly with discursive answers. Alternative answers will be marked on their own merits. This publication is copyright 2017 and may not be reproduced without permission of Accounting Technicians Ireland. Accounting Technicians Ireland, Page 2 of 29

3 INSTRUCTIONS TO CANDIDATES PLEASE READ CAREFULLY For candidates answering in accordance with the law and practice of the Northern Ireland. In this examination paper the symbol may be understood and used by candidates in Northern Ireland to indicate the UK pound sterling. Candidates should answer the paper in accordance with the appropriate provisions up to and including the Finance Act The provisions of the Finance Act 2018 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 FOUR questions in Section B. If more than TWO questions are answered in Section B, then only the first three questions, in the order filed, will be corrected. Candidates should allocate their time carefully. All workings should be shown. All figures should be labeled as appropriate e.g. s, units etc. Answers should be illustrated with examples, where appropriate. Question 1 begins on Page 2 overleaf. The following inserts are enclosed with the paper: Tax Reference Material Page 3 of 29

4 QUESTION 1 (Compulsory) Section A Answer ALL THREE questions (Compulsory) in this Section Edward was born on 29 th September 1961 and has been in practice for many years as a dentist. He is married to Simone and the couple have two small children ages three and five. The following is Edward s Income Statement for the year ended 31 st December 2017: Notes Income: Prescription income ,518 Shop income ,118 1,075,636 Expenditure incurred Purchases ,055 Staff pension costs... 2,000 Wages and salaries... (1) 99,670 Premises costs... (2) 7,100 Motor expenses... (3) 27,520 Repairs computer maintenance Legal and professional fees... (4) 2,720 General administrative expenses... (5) 2,482 Other expenses (course fees) Depreciation fixtures & equipment... (6) 719 Depreciation motor vehicle... 7, ,216 Surplus of income over expenditure ,420 Page 4 of 29

5 QUESTION 1 (Cont d) NOTES (1) Wages and salaries are comprised of: Shop assistants... 85,420 Locum costs... 7,650 Simone (secretarial assistance)... 6,600 99,670 (2) The dental laboratory is attached to Edward s house. Premises costs are made up as follows: Heat and light... 3,900 Insurance (buildings & contents)... 1,100 Rates Cleaning... 1,200 7,100 67% of these costs have been agreed with HMRC as relating to Edward s private house and the other 33% to business. (3) Motor expenses are comprised of the following: Fuel costs... 1,395 Insurance/tax Repairs & servicing HP interest... 1,426 Payment for new car... 23,100 27,520 The new car with CO 2 emissions of 120 g/km cost 28,800 on 1 st January 2017.The remainder of this cost was financed by Edward trading in his old car. The business element of Edward s motor expenses has been agreed with HMRC as being 25%. Edward s tax written down value at 31 st December 2016 on his previous car was 2,500. (4) Legal and professional fees are comprised of the following: Accountant s fees... 2,000 Stock taker s fees ,720 Page 5 of 29

6 QUESTION 1 (Cont d) (4) General administrative expenses are comprised of the following: Telephone bills... 1,465 Bank charges New Fax machine (purchased 28 February 2017) 150 2,482 85% 0f the telephone bills are for private use. (5) The tax written down value of fixture and equipment at 31/12/2016 was 1,250. Requirement In respect of the year ended 31 December 2017 (a) (b) (c) Prepare capital allowances computation for fixtures & equipment and motor vehicles assuming that where available all allowances are claimed. 7 Marks Prepare the Adjusted Profits Computation showing clearly the make up of any adjustments required to be made to trading profits. 9 Marks State the date by which Edward is due to submit his 2017/18 tax return and pay any balance of tax due. 4 Marks Total 20 Marks Page 6 of 29

7 QUESTION 2 (Compulsory) (1) Gary Hamilton has recently commenced business as a self-employed retailer of adults and children s clothing. Requirement Write a letter to Mr. Hamilton dealing briefly with each of the following questions which he has raised with you: (a) Should he register for VAT? 2 Marks (b) Will he have any problems recovering his input tax? 3 Marks (c) What records should he keep? 2 Marks (d) What method of VAT accounting will give him the best cash-flow and administration benefits, comparing cash accounting to the normal invoice method of accounting for VAT? 3 Marks (2) Tina Browne owns a boutique in Coleraine, selling both adult and children s clothing. All purchases arise from UK suppliers. Tina accounts for VAT on a cash receipts basis. She provides you with the following information in respect of the quarter ended 31st March 2018: Cash receipts from customers Cheque payments to suppliers Invoices received from suppliers Cash expenses paid petty cash Overheads paid by cheque Wages and salaries paid by cheque Deposit paid on new cash register Total Adult Children 78,000 52,000 26,000 36,000 27,000 9,000 40,000 32,000 8,000 2,900 15,000 11,500 1,630 NOTES (1) VAT has been paid on all petty cash expenses and on all overheads paid by cheque except for insurance costs of 1,690. The new cash register is due to be delivered with the invoice in April Page 7 of 29

8 Requirement (a) Calculate the VAT liability payable by Tina Browne for the quarter ended 31 st March Show clearly how you can calculate both the output tax and any input tax credits. 8 Marks (b) Calculate the VAT payable for the quarter ended 31 st March Marks Total 20 Marks QUESTION 3 (Compulsory) Salvo Rossini who was born on 4 July 1967 has a number of properties from which he derived a rental income: (1) Residential house at 123 Greenacres Lane, Carryduff. (2) Apartment at 45 The Quay, Lisburn. This property was purchased on 1 st May 2017, for 425,000. He let the property for 800 a month, commencing on the 1 st August Salvo advised you that the costs associated with letting the properties for the year ended 5 th April 2018 are: Residential House Apartment Notes Receipts: Rents received 15,000 6,400 Deposit received (i) 800 Payments: Insurance (ii) Repairs and renewals (iii) 4,080 Rates 1, Bank repayments (iv) 6,180 8,580 Collection expenses (v) 1, Advertising (vi) 125 Management fees (vii) 320 Furniture (viii) 5,875 Ground Rents 36 (i) This is a security deposit which is refundable at the end of the lease. (ii) These are the costs for the 12 months ended 5 th April Page 8 of 29

9 (iii) (iv) The costs comprised: New slates to roof Replacement furnishings Installation of oil fired central heating... 2,720 4,080 These are the bank repayments on the bank loans to acquire the properties. The amounts represent payments made for the 12 months ended 5 th April The interest element included in these payments was: House... 3,000 Apartment... 8,580 (v) Salvo Rossini engages a firm of estate agents to collect the rents on his behalf. (vi) Advertising for a tenant. (vii) Fee paid to the apartment management company to care for the apartment block for the year. (viii) Salvo spent 5,875 on kitchen and bedroom furniture and equipment prior to first letting. Salvo Rossini had the following other income for the tax year ended 5 April 2018: Income: Employment income (1) 32,120 Dividends from UK Trading company (2) 13,500 Bank deposit interest- standard deposit account (3) 1,600 (1) The employment income from Salvo s employment with Ferris Foods Limited. The P60 details for the tax year ended 5 th April 2018 show: Gross salary... 32,120 PAYE... 4,536 (2) Dividends from Ulster Bank Plc 13,500. (3) Deposit interest income arose on an ordinary bank account with the Eastern Link Building Society. The amount received was 1,600. Requirement In respect of the tax year ended 5 th April 2018: - (a) (b) Compute the net rental income of Salvo Rossini. Calculate any balance of Income Tax payable or repayable by/to Salvo Rossini. Total 20 Marks Page 9 of 29

10 QUESTION 4 (Optional) Section B Answer ANY TWO of the FOUR questions in Section B (1) BLUE MOON Ltd., a UK registered trading company, which had previously made up accounts to 30th June, changed its year-end to 31 st March. BLUE MOON Ltd., is a close company with no other associated companies for taxation purposes. Its results for the three accounting periods ended 31 st March 2018 were as follows. 12 Months Ended 30 th June Months Ended 31 st March Months Ended 31 st March 2018 Trading Profit/(loss) 101,700 89,070 (221,880) Interest Income 2,500 4,500 - Chargeable Gains - 13,000 10,000 For the accounting period ended 31st March 2019 the company is predicting a trading profit of 30,000, Interest income of 5,000 and chargeable gains of 35,000. Requirement Compute the taxable profits for each accounting period for BLUE MOON Ltd., on the assumption that the company makes all available loss relief claims so as to obtain relief against the earliest possible profits. (Candidates are required to show clearly how losses are utilised by maintenance of a loss memorandum account.). Quantify the predicted amount of any unutilised trading loss at 31 st March 2018 and state how this can be utilised in the future, and assuming BLUE MOON Ltd., predictions are correct for the accounting period ending 31 st March 2019, the loss (if any) that will be available to carry forward against future profits. Total 20 Marks Page 10 of 29

11 QUESTION 5 (a) On 5 th July 2017, Pat Jervis sold a house for 850,000. This house had been rented to tenants ever since its acquisition on 5 th July The house had been acquired along with 109 acres of land at a total cost of 565,000. Pat had incurred allowable costs of 8,000 on the sale of the house. The 109 acres of land which Pat retained was valued at 1,000,000 on 5 th July Pat is a higher rate taxpayer and has not made any other capital disposals in 2017/2018. Requirement For the tax year 2017/2018 how much Capital Gains tax is payable by Pat Jervis? 5 Marks (b) On 29 th September 2017, Hugh Baillie sold an antique vase for 7,900. The vase had been purchased in January 2011 for 2,000. He has taxable income after all allowable deductions and personal allowance of 20,000. Requirement What is Hugh Baillie chargeable gain (ignoring annual exemption) on the sale of this antique vase? 5 Marks (c) Taylor Smyth has been in business for ten years. She purchased her factory building for 360,000 in April 2005 at which time she commenced trading in the manufacture of air conditioning equipment for offices. In October 2017 she ceased trading and sold the factory on 31 st October 2017 for 1,000,000. Taylor incurred solicitor s costs in relation to the sale of 2,650, estate agent fees of 2,950 and tax panning fees of 3,000. Taylor also had capital losses of 151,000 brought forward at 6 April 2017 from a shareholding in a private limited company that failed. These losses have been agreed with HM Revenue & Customs. Taylor has not made any other capital disposals in 2017/18. Requirement What is Taylor Smyth s capital gains tax liability in respect of the sale of the factory? 5 Marks (d) On 28 th February 2018 Shane Young made a gift of a painting worth 190,000 to his daughter Sinead. Shane had acquired this painting at an auction for 5,000 on 2 nd July The value of the painting at 31 st March 1982 was 18,000. On 28 th February 2007 Shane spent 6,000 on restoration costs in respect of this painting. Shane Young is a higher rate taxpayer and has not made any other capital disposals in 2017/18. Requirement What is Shane Young s liability to capital gains tax in respect of the gift of this painting? 5 Marks Total 20 Marks Page 11 of 29

12 QUESTION 6 (MULTIPLE CHOICE) The following multiple choice question consists of TEN parts, each of which is followed by FOUR possible answers. There is ONLY ONE right answer in each part. Requirement Indicate the right answer to each of the following TEN parts. 20 Marks N. B. Each part carries 2 marks. Candidates should answer this question by ticking the appropriate boxes on the special green answer sheet which is supplied with the examination paper. [1] Zack s employer provides him with a company car bought new on 6 th June The car s CO 2 figure is 210 grams per kilometre. The car s list price is 18,450 and it is fuelled by diesel. The benefit-in-kind for 2017/18 on this car is: (a) 6, (b) 5, (c) 6, (d) 7, [2] On 31 st January 2018 Yvonne had an outstanding balancing payment on her 2016/17 income tax liability of 4,320. Yvonne s 2016/17 tax return was submitted on 31 st January 2018; however, this tax was paid late on 13 th March The amount of surcharge on late payment of this tax was:- (a) 100 (b) 216 (c) 316 (d) 532 [3] Vincent is a single person born 10/11/1944 and in the tax year ended 5 th April 2018, he received income from retirement pensions of 6,545. Vincent also received bank deposit interest of 1,500 and dividends of 351. No tax has been paid on the pension income. Vincent s income tax repayable for 2017/18 is:- (a) 2, (b) (c) NIL (d) Page 12 of 29

13 QUESTION 6 (Cont d) [4] Ursula born 23/06/57 receives the following in 2017/18- Child benefit 1,575 Dividends from a UK close company 9,000 Interest on National Savings Income Bonds 5,200 Maintenance payments from former spouse 4,600 Interest on overpaid Income Tax from 2016/ Ursula s gross taxable income for the tax year 2017/18 is: (a) 10,000 (b) 11,575 (c) 14,200 (d) 21,514 [5] Timothy operates a small business based in Ballymena, Co. Antrim. Timothy can apply to join the Flat Rate Scheme for small businesses provided there are reasonable grounds for believing that his total business income for the next year will be: - (a) (b) (c) (d) 100,000 or less exclusive of VAT 100,000 or less inclusive of VAT 150,000 or less exclusive of VAT 150,000 or less inclusive of VAT [6] Which of the following is not a zero rated supply for VAT purposes: - (a) (b) (c) (d) supply of children s footwear supply of cold unprocessed food by a supermarket export of goods to a foreign country outside the EC. provision of insurance [7] Which of the following expenses provided by employer to an employee earning 8,500 pa is an assessable BIK under the taxation of earnings from employment: - (a) (b) (c) (d) business travel expenses reimbursed contribution to the employees personal pension plan relocation expenses of 6,000 paid on moving office to another part of the country private medical insurance Page 13 of 29

14 QUESTION 6 (Cont d) [8] Simon aged 35, purchased a 100 acre estate in May 2007 for 1 million and incurred legal and other allowable costs of 50,000. In 1 st October 2017, he sold 10 acres of the estate for 700,000. The costs of this sale were 30,000. The value of the remaining land was 3 million. Simon s capital gain (before any annual exemption due), on this sale of this non-business asset is: - (a) 282,811 (b) 471,351 (c) 480,811 (d) 501,351 [9] RUPEE Ltd. makes a trading loss in the year to 31 st December RUPEE Ltd. can claim loss relief against the total profits make in the year ended 31 st December 2017 on the following basis: (a) (b) (c) (d) the claim can be limited in amount so as to leave sufficient profits in charge to cover non trade charges the claim can be limited so as to leave sufficient profits to cover trade charge the claim can be limited so as to leave sufficient profits in charge to cover all charges the claim cannot be limited so as to leave profits in charge to cover any charges incurred by the company. [10] PUGWASH Ltd. in the year ended 31 st March 2018 had profits chargeable to corporation tax totaling 2 million. The company pays its corporation tax liability under the quarterly installment payment provisions. The first installment of corporation tax will be due on:- (a) 14 th October 2017 (b) 14 th January 2018 (c) 14 th October 2018 (d) 14 th January 2019 Page 14 of 29

15 QUESTION 7 Sammy Silkstone is a client of your firm, and as such you prepare both personal tax returns (Form SA) for her and also prepare the Corporation tax return for the company she owns Silky Fabrics Ltd. One of Sammy s friends has recently been the subject of an enquiry into their tax affairs by HM Revenue & Customs and she is now expressing concern that either her or Silky Fabrics Ltd s recent returns could also be subject to an enquiry. Sammy Silkstone has asked you to explain the rules in respect of such enquiries to her. Requirement Write a letter to Sammy Silkstone, in which you set out the tax position in respect of an enquiry carried out by HM Revenue & Customs. This letter should cover the following areas: (a) The scope of enquiries. (b) The time limit for enquiries. (c) HM Revenue & Customs entitlement and power to call for documents (d) The amendment of returns during enquiries (e) The completion of enquiries (f) The right of appeal (g) Payment of tax, interest and penalties Total 20 Marks Page 15 of 29

16 Advanced Taxation (Northern Ireland) Sample Paper 1 Suggested Solutions Page 16 of 29

17 Solution 1 EDWARD Main Pool Single Asset Pool Pte Capital use Allowances a) Capital allowances computation 75% WDV B/fwd 1,250 2,500 Disposals (Trade in Allowance) - - (5,700 ) 1,250 - (3,200 ) Balancing charge 3,200 2, Balancing - charge Additions not qualifying for FYA Car CO2 emissions 120g/km 28,800 Additions qualifying for AIA (28/02/16) 150 AIA ,250 28,800 18% Note restricted private use on motor vehicle (225) (5,184) 3,888 1,521 Capital allowances claimed 1,671

18 b) Adjusted Profits computation Surplus income per accounts 124,420 Add Premises costs 67% 4,757 Motor expenses: Payment for new car 23,100 Motor expenses (27,520-23,100 x75%) 3,315 General administration fees New fax machine 150 General administration fees telephone 85% 1,245 Depreciation - fixtures & equipment 719 Depreciation - motor vehicle 7,200 Deduct 164,906 Capital allowances (1,671) Add Balancing charge 800 Adjusted profit 164,035 40,486 c) Date for online submission of return to HM Revenue& Customs is 31st January 2019 (following end of tax year on 5th April) unless Edward is expecting the Revenue to compute his tax liability in which case the return needs to be submitted to them by 31 st October Any outstanding/balancing payment must also be made by 31st January 2019 with two payments on account each being 50% of the previous year s total tax liability having been due in two payments on 31 January during the tax year ie. 31 January 2018 and 31 July Page 18 of 29

19 Solution 2 Gary Hamilton 8th October 2017 Mr G Hamilton 31 Oval Place BELFAST BT4 9AB Dear Mr Hamilton In response to the questions raised at our meeting in connection with VAT, I have dealt with these below: - (a) Should you register for VAT? You supply both adults and children s clothing. If your turnover from the retail of these exceeds 85,000 in the next 12 month period (or any consecutive 12 month period) then registration for VAT will be compulsory. You will then have to account for VAT on all your sales. VAT on the sale of adults clothing will be at the standard rate of 20% whereas VAT on children s clothing, whilst still counting as a vatable supply is zero rated. (b) Will you be able to recover your input tax? Input tax is the VAT you are charged by other VAT registered traders on the supply of goods or services to you. Once registered you will be able to recover this VAT on all goods or services incurred wholly or exclusively for the purposes of the business except where this is not permitted under the VAT legislation. Examples of non-recoverable input tax are the VAT incurred on entertaining, goods taken for your own use, or on the purchase of a motor car. This will normally be recovered in the first instance by deduction against the output tax you will be due to pay over to HM Revenue and Customs on your sales. In the event of you incurring substantial start up costs eg. building repairs or improvements which are subject to VAT, you might decide that it is to your advantage to register for VAT at an earlier date in order to recover this input tax. (c ) What records should you keep? You should retain copies of all VAT invoices sent to you in connection with goods or services purchased for the business along with a record of all purchases incurred showing the date of purchase, the suppliers name and VAT number and the amounts involved both net of VAT and the VAT incurred. As a retailer you should also keep sales invoices and or daily till rolls showing the date of sale, the type of goods sold and the gross amount of goods sold (inclusive of VAT). Other business records including your cash and bank records of the business, bank statements and hire purchase and leasing records also need to be retained. The normal basis for accounting for VAT is likely to be the most suitable for your business. This will mean that VAT will be payable in the period that you generate your sales invoice and input VAT recoverable in the period in which you receive the suppliers invoice. As a retailer the cash accounting method for VAT would not normally be suitable because under this method you will be paying over output VAT immediately as most of your sales are cash rather than credit sales but you will not be able to recover input VAT on purchases until after the VAT period ending (usually the quarter ending) whenever you pay the suppliers invoice.

20 Solution 2 (CONTINUED) (2) Tina Browne (a) VAT for the quarter ended 31st March 2018: Cash Accounting Output VAT Gross Vat(1/6) Net CASH RECEIPTS Adult s clothing 52,000 8,667 43,333 Children s clothing 26,000-26,000 78,000 8,667 69,333 Input VAT CASH/CHEQUE PAYMENTS Purchases per cheque payments Adults clothing 27,000 4,500 22,500 Children s clothing 9,000-9,000 Cash register (deposit paid but no VAT invoice) Vatable overheads (15,000-1,690) 13,310 2,218 11,092 Cash expenses Vatable 2, ,417 52,210 7,201 45,009 b) VAT payable Q/E = Output Tax 8,667 Input Tax 7,201 = 1,466 Page 20 of 29

21 Solution 3 Salvo Rossini (1) Net Rental Income Total House Apartment Income received 21,400 15,000 6,400 Deduct Insurance 1, Repairs & renewals ( ) 1,360 1,360 - Rates 2,630 1, Bank interest Repayments (75%) 8,685 2,250 6,435 Collection expenses 2,140 1, Advertising Management company fees Ground Rents Net (loss)/surplus for period 5,079 7,590 (2,511) Page 21 of 29

22 Solution 3 (Cont d) (2) Computation of the balance of income tax payable Total non-savings dividend income income savings inc income Income Employment income 32,120 32,120 Rental income 5,079 5,079 Bank deposit interest 1,600 1,600 Dividends 13,500 13,500 Deduct Personal allowance (11,500) Tax payable thereon at basic rate 20% 5, at savings rate (PSA) 500@ 0% savings rate 20% at dividend rate (DA) 0% dividends 7.5% dividends 32.5% Less Tax credit PAYE 52,299 37,199 1,600 13,500 - (11,500) 40,799 25,699 1,600 13, , , (4,536.00) Less Tax reducer (w1) 2,895 * 0.20 (579.00) W1 Tax 20% lower of: Finance costs disallowed (11,580 * 0.25) 2,895 Property profits 5,079 Adjusted total income (40,799-1,600-13,500) 25,699 2, Page 22 of 29

23 Solution 4 Blue Moon Ltd Computation of profits chargeable to corporation tax (Predicted) y/e p/e y/e y/e 30/06/ /03/ /03/ /03/2019 Trading ProfitsSch D Case 1 101,700 89,070-30,000 - less S393 (1) LOSS RELIEF (30,000) 101,700 89, Interest Income 2,500 4,500 5,000 Chargeable gains - 13,000 10,000 35, , ,570 10,000 40,000 less S393 A (1) c/back against 9 months ended 31/03/17 c/back against last 3 months of the previous AP - (26,050) - (106,570 ) - (10,000 ) PCTCT 78,150 NIL NIL 40,000 Page 23 of 29

24 Solution 4 Loss memorandum Loss y/e 31st March ,880 utilised against this year s income ( 10,000) utilised against 9 m/e 31/03/17 211,880 - (106,570 ) 105,310 utilised against 3 m/e 30/06/16 ( 104,200* 3/12) ( 26,050 79,260 predicted usage against y/e 31/03/19 (30,000) Loss carry forward against future trade profits only 49,260 Page 24 of 29

25 Solution 5 a) Pat Jervis Sale of house 850,000 - Deduct allowable costs on sale (8,000 ) cost of asset sold - part disposal ( A/(A+B) ) (565000*850k/1,850k) 842,000 - (259,595) Gain 582,405 - annual exemption (11,300) Gain 571,105 Capital Gains Tax payable 28% 159,909 b) Hugh Baillie Sale of antique vase 7,900 deduct cost - 2,000 Gain 5,900 but as this is a chattel this gain is restricted to: 7,900-6,000 x 5/3 3,167 Page 25 of 29

26 Solution 5 (Cont d) c) Taylor Smyth Sale of factory building 1,000,000 deduct allowable selling costs solicitors fees (2,650 ) estate agents fees (2,950 ) ( 5,600) 994,400 Deduct acquisition costs (360,000 ) Capital gain 634,400 less capital losses (151,000) 483,400 Annual exemption ( 11,300) Gain subject to CGT 472,100 Gain will be charged at the Entrepreneurs Relief Rate of 10% Note tax planning fees cannot be deducted. d) Shane Young Gift of painting 190,000 Value 31/03/82 (18,000 ) 172,000 restoration costs ( 6,000) Gain 166,000 Annual exemption (11,300 ) Gain subject to CGT 154,700 Capital Gains Tax payable Capital Gain 20% 30,940 Page 26 of 29

27 Solution 6 Multiple Choice Question Answer Workings 1 B 18,450 X 37% (max) X10/12 2 B 5% X 4,320 3 C Total income = 8,396 (gross) covered by allowances due But no refund available 4 C 14,200 (Income from dividends & national savings income bonds) 5 C 150,000 or less exclusive of VAT 6 D Provision of insurance is exempt 7 D Private medical insurance provision is a B-I-K 8 B 700,000-30,000= 670,000 - (1,050,000 X700,000/3,700,000) 9 D The loss relief claim cannot be limited to cover charges 10 A First installment due on 14th day 6 months prior to y.e under Corp Tax installment Page 27 of 29

28 Solution 7 Sammy Silkstone Company Director Silky Fabrics Ltd 123 Linen Road BELFAST 8 October 2017 Dear Mr Silkstone HM Revenue & Customs Enquiries Further to our recent discussions, I have set out below the key aspects in respect of HM Revenue & Customs enquiries into the affairs of a taxpayer. Scope of an enquiry The enquiry could cover any aspect of either you personal return or the company's tax return. This might cover anything included in the return or that should have been included therein. This also includes any claims or elections that have been made. Time Limit Written notice of an enquiry into a tax return can be issued by HM Revenue & Customs during the twelve months after filing date where the return was submitted on or before the due date. If the return was submitted late then this period is extended to the quarter end day following the first anniversary of the submission date. (31 January, 30 April, 31 July or 31 October) In addition if an amendment is made to the return by either the taxpayer (yourself) or the company, then this window is extended to the quarter day following the first anniversary of the date the amendment was made. If any enquiry is not made during this period the it becomes final, unless HM Revenue & Customs discover fraudulent or negligent conduct in making the return (in which case a discovery assessment can be made) Power to call for documents Where an enquiry is underway, HM Inspector of Taxes may request from the taxpayer/company any documents that it believes are necessary to enable it to discover whether a return is incorrect or incomplete. A time limit will be given to comply with this request, although this will not be less than 30 days. Copies of documents may be supplied rather than originals (although the originals can be requested for inspection and HM Revenue & Customs can take copies of or make extracts from documents. Amendment of a return during an enquiry If a return is subject to an enquiry an amendment to the return can still be made by the taxpayer/company provided that it is within the normal time limit of twelve months after the filing date. Although this does not restrict the scope of the enquiry it may be taken into account when HM Revenue & Customs are arriving at their conclusions. Completion of enquiries An enquiry is completed when HM Inspector of Taxes issues a closure notice. This informs the taxpayer that the enquiry is complete and of the conclusions reached. It must therefore state either that no amendment to the return is required or provide details of any amendments made. The notice takes effect when issued. The taxpayer may apply to the General Commissioners for a direction requiring that a closure notice be issued within a specified period. Right of appeal Appeals can be made within 30 days of the issue of a closure notice to the Commissioners against decisions

29 Solution 7 (Cont d) contained therein. Such an appeal must be in writing and must specify the grounds for the appeal. Payment of tax Any additional tax found due should be paid as soon as possible. HM Revenue & Customs may amend the has the right to appeal against this assessment and postpone payment of the tax, If additional tax results from the enquiry interest will run from the normal due date, If HM Revenue & Customs discover that the return was submitted negligently or fraudulently then a penalty up to a maximum of the resulting tax underpaid may be levied. HM Revenue & Customs have the power to reduce penalties and interest, although this is rarely done in the case of interest. I trust this deals with any concerns you may have, but please do not hesitate to contact me with any questions Yours sincerely Ann Accountant Page 29 of 29