Advanced Taxation Northern Ireland. Sample Paper 2 Questions & Suggested Solutions

Transcription

1 Advanced Taxation Northern Ireland Sample Paper 2 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 34

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 34

4 Section A Answer ALL THREE questions (Compulsory) in this Section QUESTION 1 (Compulsory) Michelle Tequila is employed as a Sales Director by Astrid Toys Ltd a UK registered company. Michelle s gross salary for 2017/18 was 58,000 per annum. In addition Michelle received a bonus on 1 st May 2017 in respect of the year ended 31 st December 2016 of 3,160 (gross). A gross bonus of 3,988 in respect of the year ended 31 st December 2017 was paid on 1 st May During the tax year ended 5 th April 2018, Michelle had to relocate to Head Office and received a payment from the company for relocation expenses of 10,175. The company provided Michelle with a new Mercedes car on 5 th January This 2,456cc car had a list price of 35,000 and produces CO2 emissions of 259 grams per kilometer. The Mercedes was provided on Michelle s promotion from Sales Manager and replaced her previous vehicle, which was a 1,800cc Audi, first registered in December 2014, at a list price of 21,000 and had CO2 emissions of 156 g/km. The company paid for all diesel, including fuel for private journeys in respect of both vehicles. During 2017/18 Astrid Toys Ltd: (i) (ii) (iii) (iv) (v) Reimbursed Michelle with 2,480 in respect of entertaining expenses incurred while entertaining the company s customers. Paid 515 for private medical insurance for Michelle. Ran a crèche for children of staff and Michelle s daughter Monica, aged 3, attended four days every week. The cost of the crèche for 2017/18 was 740 and was borne by the company. Other household expenses met by the company in respect of Michelle s new house were for electricity 400 and redecoration 575 Michelle had been deducted 20,000 under PAYE in respect of her remuneration from the company. In addition during the tax year 2017/18 Michelle was in receipt of the following income: - (1) Interest from National savings income bonds of 600. (2) Dividends from Astrid Toys Ltd of 7,200. (3) Building Society interest from the ABZ Building Society of 440. Michelle during the tax year ended 5 April 2018 made a charitable Gift Aid donation of 720 to her church. Requirement In respect of 2017/18: (a) (b) Compute the total Benefit-in-Kind chargeable on Michelle Tequila. Calculate Michelle s income tax liability taking into account that she has made payments on account of 1,450 in total for 2017/18. Total 20 Marks Page 4 of 34

5 QUESTION 2 (Compulsory) You are an auditor for HM Revenue & Customs. You have been given the annual VAT Return of RUGRAT SNUG Ltd. together with its annual financial statements. Your supervisor is concerned that the returns are not correct and asks you to prepare an estimated return based on the accounts. The company has also recently submitted an application to join the cash accounting scheme for VAT the merits of which need to be considered. VAT Return year ended 31 st December 2017 Net VAT on sales (Box 1) ,985 VAT on purchases (Box 4)... 90,500 Net payable (Box 5)... 20,485 Total goods to other EU countries (included in sales) ,000 Total goods from other EU countries (included in cost of sales) ,000 RUGRAT SUNG Ltd. accounts for the year ended 31 st December 2017 and 2016 Profit & Loss for the year ended 31 st December Notes Y/E Y/E Sales , ,000 Cost of sales... (1) 500, ,000 Gross profit , ,000 Other expenses... (2) 233, ,200 67,000 45,800 Dividends received... 5,000 4,000 Profit before tax... 72,000 49,800 Taxation... 10,000 15,000 Profit after tax... 62,000 34,800 Dividend paid... 7,000 10,000 Profit for year... 55,000 24,800 Page 5 of 34

6 QUESTION 2 (Cont d) Balance sheet (extract) at 31 st December 2017 NOTES Fixed assets... (3) 149, ,800 Current assets: Stock... 80,000 60,000 Debtors , ,000 Bank and cash ,000 87, , ,000 Creditors: Trade creditors... 95,000 67,000 Other creditors , , , ,000 Net assets 287, ,800 Capital and reserves: Share capital... 50,000 50,000 Revenue reserves , , , ,800 (1) The company is authorised to account for Value Added Tax under the annual accounting scheme. (2) 50% of purchases are from EU supplies. The remainder are supplied by suppliers registered for VAT in the UK. (3) Expenses include the following: Wages ,200 58,000 Rent... 50,000 45,000 Light and heat... 4,000 3,200 Miscellaneous expenses... 14,000 15,000 Depreciation... 30,800 20, , ,200 There has been no option for VAT made by the landlord in respect of the property rented to RUGRAT SNUG Limited. Page 6 of 34

7 (4) Fixed Assets: The fixed assets note attached to the financial account is as follows: Plant and Motor Total Cost Equipment vehicles At 31 st December 2016: 210,000 30, ,000 Additions in year 36,000 30,000 66,000 Disposals in year (16,000) (16,000) At 31 st December ,000 60, ,000 Depreciation: At 31 st December ,200 18, ,200 Charge for year 18,800 12,000 30,800 On disposal (2,000) (2,000) At 31 st December ,000 30, ,000 Net book value 119,000 30, ,000 The motor vehicles comprise of two cars used by company salesmen. These cars both have CO 2 emissions in g/km of 195 and are available for private as well as business use. VAT has previously been claimed on the plant and equipment sold during the year. This plant was sold for 14,000 (net). (5) The company s turnover is comprised of supplies to which VAT at the standard rate is chargeable where appropriate. It has already been confirmed by Customs and Excise that all EU customers and suppliers are VAT registered. Requirement (a) (b) Calculate the VAT liability of RUGRAT SNUG Ltd. for 2017 based on the accounting information and notes provided. Show clearly your calculations of both the VAT on sales (output VAT) and VAT on purchases (input VAT) figures. 14 Marks Compare your figures with the return made by the company and briefly outline your conclusions to your supervisor. Follow this up by writing a business letter to Edward Hamster the Finance Director of RUGRAT SNUG Ltd., outlining whether the annual accounting scheme and cash accounting scheme are still appropriate for the company accounting for its VAT. 6 Marks Total 20 Marks Page 7 of 34

8 QUESTION 3 (Compulsory) QuarterJack Ltd., a UK registered trading company, was incorporated on 21 February 2016 with an authorised share capital of 100,000 divided into 100,000 ordinary shares of 1 each. After issuing 80,000 of these, the company commenced trading as mechanical engineers on 1 April 2016 It prepared accounts to & annually thereafter. Its income statement for the accounting period to 31 March 2018 showed: Notes Gross Profit from trading 488,097 Investment income 1 3,000 Profit on sale of investments 2 7, ,622 Deduct Salaries office 49,120 Rent, rates and insurance 5,675 Lighting and heating 4,000 Motor expenses 3,261 Repairs & renewals 3 15,140 Legal expenses 4 1,370 Directors remuneration 34,000 Audit and accountancy 3,131 Travelling and hotel expenses 2,320 Miscellaneous expenses 5 1,690 Debenture interest 6 6,000 Depreciation on plant & 3,067 machinery Depreciation on vehicles 2,063 Premium on lease written off 7 14, ,837 Net profit for the year 8 353,785 The following information is also given: (1) The investment income comprised: Bank account deposit interest 1,200 UK dividend income received 1,800 3,000 (2) The profit on the sale of investments resulted from the sale of quoted shares bought in May 2017 for 20,000 and sold in September 2017 for 27,525 (3) Repairs & renewals comprised: Installation of central heating system 12,000 Re-tarmac of car parking area 3,140 15,140 Page 8 of 34

9 (4) Legal expenses comprised: Issue of debentures 600 Acquisition of seven year lease of office premises 370 Staff service agreements 400 1,370 (5) Miscellaneous expenses were: Trade subscriptions 244 New trade mark registrations 246 Luncheon vouchers for staff 30p each) 1,200 1,690 (6) On 1 October 2017, 200,000 debentures were issued by the company, in order to raise money for the trade. They pay interest at the rate of 6% per annum payable half yearly on 31 March and 30 September each calendar year. To date all payments have been made on the due dates. (7) On 1 January 2018, the company vacated its rented office accommodation and obtained a lease for more suitable premises for a period of seven years from that date, for which it paid a premium of 14,000. As a result under the tax legislation QuarterJack Ltd is entitled to claim 1,760 each year against its profits chargeable to Corporation tax (for the next seven years). (8) There are no associated companies. (9) Capital allowances are claimable by the company on the following: - The balance carried forward on the company s general pool for capital allowance purposes as at 31 st March 2017 was 132,000. QuarterJack Ltd had the following transactions during the year ended 31 st March st April 2017 The company bought a new car at a cost of 25,000. The CO2 rating was 170g/km. 12 th August 2017 The company acquired design equipment under a hire purchase agreement. QuarterJack Ltd paid a deposit of 10,000 and 30 instalments of 1,250 per month. The cash price of this equipment on 12 th August 2016 was 40, th March 2018 The company purchased a new boardroom table at a cost of 5, th March 2018 The company sold design equipment for 31,000. This equipment had originally cost 29,750 two years previously. The company does not qualify for FYA on any of the above additions (10) On 27 October 2017 the company paid an interim dividend of 5.35p per share on its ordinary share capital. Page 9 of 34

10 Requirement: In respect of QuarterJack Ltd s accounting period of twelve months ended 31 March 2018 (a) Calculate the capital allowances claimable assuming all allowances are claimed as early as possible 7 Marks (b) Compute the tax adjusted profits. 6 Marks (c) Section B Compute the mainstream corporation tax which would be payable assuming all reliefs and allowances are claimed as early as possible 7 Marks Total 20 Marks Answer ANY TWO of the FOUR questions in Section B QUESTION 4 Mrs. Philomena Molloy has been widowed for a number of years. Her husband Charles died on the 1 st April Philomena was born on lives alone at 5 Dodder Valley, Co Antrim. Mrs. Molloy has other income for the year ended 5 th April 2018 of: Notes Income: Occupational pension... (i) 19,920 Retirement pension... (ii) 5,716 Bank deposit interest standard deposit account... (iii) 2,300 Dividends from UK Trading company...(iv) 240 (i) The occupational pension arises from her deceased husbands employment and is paid by the SUNNY DRAPES PENSION Co. The P60 details were: Gross pension: 19,920, PAYE: 1,252 (ii) State retirement pension, amount received 5,716 (iii) Deposit interest income arose on an ordinary deposit account with the SOUTH DOWN BANK. (iv) Dividends from the NORTH ANTRIM BANK Plc., 240 In addition to the above, Mrs. Molloy has other transactions and expenses in the tax year 2017/18 as follows: (1) Mrs. Molloy paid 2,000 (net) under gift aid to a qualifying charity for tax purposes. (2) Mrs Molloy has made no payments on account in respect of her 2017/18 Income Tax liability Requirement: - In respect of the tax year ended 5 th April 2018 :- (a) Calculate any balance of Income Tax payable by or repayable to Mrs. Molloy (b) A business may make a loss during the year or the tax adjusted trading income may result in a loss. This will mean that the taxable in the tax year is NIL and that loss relief may be available to reduce the trader s tax liability. Outline the ways in which such loss relief can be utilized. Total 20 Marks Page 10 of 34

11 QUESTION 5 (a) On 30 th June 2017, Thomas sold a house in Ballymena for 115,000. He incurred estate agents fees of 1,100 and solicitors fees of 560 in connection with this sale. He had purchased the house for 1,600 on 1 st July The history of his ownership of this house is as follows: 1 st July 1994 Occupied as his sole residence 1 st July 1999 House let on taking up employment abroad 1 st July 2009 Thomas returned to work in Lisburn but continued to let the house in Ballymena at a commercial rent, and purchase a house in Lisburn as his principal private residence. This remained the position until he sold the Ballymena House. He has taxable income, after all allowable deductions and personal allowance of 20,000. He has not made any other capital disposals in 2017/18. Requirement (i) Calculate any Capital Gains Tax payable by Thomas on the sale of this house in Ballymena. (ii) 8 Marks What steps, if any, could Thomas have taken to reduce his capital gains tax liability on this sale? 2 Marks (b) On 1 st February 2018, Joseph a UK resident aged 56 sold his pharmacy for 1,200,000, which included the premises, goodwill, fixtures and fittings and stock. The sales proceeds were apportioned as follows: Sales Acquisition Proceeds Cost Date Premises , ,000 1 September 1998 Goodwill , ,500 1 September 1998 Fixtures and fittings... 5,000 18,000 1 April 2008 Stock... 25,000 25,000 1 February ,200,000 Capital allowances were claimed on the fixtures and fittings and in all individual cases the apportioned sales proceeds did not exceed costs. In connection with the disposal Joseph had the following costs: Accountant fees for CGT planning... 2,500 Solicitors costs on disposal... 2,875 Advertising costs... 1,175 Estate agents fees... 3,750 10,300 Joseph had capital losses brought forward from 2016/17 of 17,000. His taxable income, after all allowable deductions and personal allowance exceeded 33,500. He has not claimed Entrepreneur s Relief in previous years. Page 11 of 34

12 Requirement For 2017/18 compute any Capital Gains Tax payable by Joseph on the sale of the business taking into account any Entrepreneurs relief available to Joseph on the disposal of this business. Assume that he wishes to utilise his capital losses carried forward. 10 Marks Total 20 Marks Page 12 of 34

13 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 answer sheet which is supplied with the examination booklet. [1] Which of the following taxable supplies are normally exempt from VAT in the UK? (A) (B) (C) (D) Fees charged by a dentist The supply of children s clothing by a retail store The supply of cold meats by a supermarket chain The construction of a new residential dwelling house [2] In a UK VAT registered business that makes partially exempt supplies which of the following statements is NOT true? (A) (B) (C) (D) 100% of input tax is not recoverable where the item purchased is used entirely for making exempt supplies. Output VAT should be charged on all taxable supplies made by the business. Input VAT on overheads incurred in making both taxable and exempt supplies can be reclaimed in full. Traders may ignore any adjustment under these rules where the monthly input vat is less than 625 on average. [3] W Ltd incurs a trading loss for its accounting period of nine months ended 31 st March This loss can be relieved against which of the following? (A) (B) (C) (D) By set-off against the total income of W Ltd in the previous 12 months. By set-off against the total income of W Ltd in the previous 36 months. By carrying forward against W Ltd s total taxable income in future tax years By set-off against charges incurred by W Ltd in the same accounting period. [4] M Limited, a long established UK small company prepares its financial statements to 30th September each year. In order to avoid paying interest on late payment of Corporation with respect to its accounting period of twelve months ended 30 September 2017 the company must pay sufficient Corporation Tax to cover any liability owing by: - (A) 19 May 2018 (B) 1 July 2018 (C) 14 July 2018 (D) 1 October 2018 Page 13 of 34

14 [5] Steve started trading on 1 st January 2017 preparing his first accounts for the six months to 30th June 2017 and annually thereafter. Steve s results are as follows: - Period to 30th June ,500 Year to 30th June ,000 The overlap profits created on the commencement of trading by Steve are as follows: - (A) 6,250 (B) 18,000 (C) 24,250 (D) 27,000 [6] Mel drives a company car for which all expenses including fuel are paid for by the company. The car which has a list price of 18,100 is a 1650 cc car with CO2 emissions of 148 g/km and has a petrol engine. The total benefit in kind in respect of this car for 2017/2018 is: (A) 5,068 (B) 5,678 (C) 11,396 (D) 12,006 [7] Which of the following is not normally an allowable deduction for corporation tax in a private limited company s financial statements: - (A) (B) (C) (D) National Insurance Contributions in respect of Directors Remuneration Class 1A National Insurance Contributions on company car benefits legal fees paid for the purchase of a new factory building Pension contributions made by the company into the Directors personal pension schemes [8] Jeff sold his retail shop on 1 st May 2017 and made a net gain for capital gains tax purposes of 450,000 on the sale before entrepreneurial relief. He had started the shop on 1 st July The amount of capital gains tax payable on the sale of this shop by Jeff (assuming full entitlement to entrepreneurial relief and that annual exemption is available) is as follows: - (A) Nil, as the sale of the shop is less than 10 million. (B) 43,870 (C) 122,836 (D) 45,000 Page 14 of 34

15 QUESTION 6 (Cont d) [9] Zach started trading on 6 th April 2017 and prepared his first set of accounts to 5 April During this period he acquired the following assets for use in his business: - 1 st July 2017 New car (CO 2 181g/km) 21,000 1 st August 2017 Fixtures & equipment 16,000 Assuming that the HMRC allow 2/3 of the motor expenses as being incurred for business purposes AND Zack qualifies for the AIA (annual investment allowance) what are the maximum capital allowances that Zack can claim for the period of trading ended 5 April 2018? (A) 19,780 (B) 17,120 (C) 4,000 (D) 17,680 [10] Fiona is a VAT registered trader who runs her own consultancy business. Her motor car is necessary to enable her to conduct her business. HM Revenue and Customs have agreed that 90% of her car travel is business related. In January 2018 she leased a new car costing 470 plus VAT every month. Fiona can reclaim the following input Vat on this transaction: (A) (B) (C) (D) Nil per month per month per month Page 15 of 34

16 QUESTION 7 (A) Celestine has acquired a small hotel business which he operates with effect from 1 st January 2017 and has registered for VAT with effect from this date. Celestine has applied to use the flat rate scheme to calculate his VAT liability. The published flat rate percentage for the hotel or accommodation trade sector is 10.5%. Celestine s trading figures for the quarter ended 30 th June 2017 are as follows: Trading income 20,000 including VAT Expenses 8,000 including VAT of 1,000 During the above quarter Celestine also spent 4,000 plus VAT on new kitchen equipment for the business. Requirement You are required to prepare a memorandum for discussion with Celestine covering the following: (a) The figures to be included in Celestine s VAT return for the quarter ended June 2017 explaining clearly how all figures are arrived at. (b) The manner in which turnover and expenses will be shown in the accounts. (c) The due date for submission of the June 2017 return and payment of any tax due. 10 Marks (B) Plastra Construction Ltd is a building company which commenced trading in You are an assistant at the company s accountants and have recently received a telephone call from John Joiner, a director of the company regarding the Construction Industry Scheme (CIS). Requirement You are required to write a letter to John Joiner answering the following questions: (d) (e) As a sub-contractor under CIS, how can we qualify to be paid gross by contractors? Please show how the tax deduction is calculated for the following payment to a sub-contractor who has been verified as a 20% net sub-contractor ; Labour element 600 Materials 420 VAT Marks Total 20 Marks Page 16 of 34

17 Advanced Taxation (Northern Ireland) Sample Paper 2 Suggested Solutions Page 17 of 34

18 Solution 1 Michelle Tequila (i) a) Total Benefits in Kind RELOCATION EXPENSES Total less exempt (10, ,000) 2, ======= (iii) Car Benefit Period 6/4/2017-5/01/2018 Audi CO 2 emissions 156g/km = 9/12 x (30% +3% )x 21,000 = 5, Period 6/1/2017-5/4/2017 Mercedes (259g CO2) = 3/12 x 35,000 x 37% = 3, Total Car Benefit 2017/18 8, ======= (ii) USE CAR FUEL BENEFIT - FUEL FOR PRIVATE Audi Car (Diesel) = 22,600 x 9/12 x(30% +3%)= 5, Mercedes Car (Diesel) = 22,600 x 3/12 x37%= 2, , ======= (iv) PRIVATE MEDICAL INSURANCE (v) CRECHE - EXEMPTED less than 55 pw - (vi) HOUSEHOLD RUNNING EXPENSES Electricity Redecoration ======= (vii) ENTERTAINING EXPENSES REIMBURSED -

19 - TOTAL CHARGEABLE BENEDITS IN KIND 19, Michelle - EARNINGS/INCOME TAX COMPUTATION Salary 58,000 Bonus 3,160 Benefits - (see attached) 19,784 Total income from earnings 80,944 Deduct allowable expenses Entertaining Business - Interest from National Savings Bank income bonds 600 Building Society Interest ABZ B/Society 440 Dividends 7,200 TOTAL INCOME 89,184 Personal Allowance 11,500 INCOME TAX COMPUTATION On Income before dividends at basic rate (extended by gift aid - gross of 900) 77,684 33, x 20% 6, ,044 x 40% 14, PSA 500 x 0% 540 x 40% DA 5,000 x 0% - 2,200 x 32.5% Less Tax deducted at source under PAYE (20,000.00) POA (1,450) Tax due Page 19 of 34

20 Solution 2 RUGRAT SNUG Ltd (a) VAT for the year ended 31st December 2017 Output VAT Net Vat Sales (Standard rate) 680, , Sales (Zero rate) 120, Box 8-800, , Sale of Plant 14, , , , Scale charge - output vat motor vehicles 2 cars x x 4 qtrs 2, , , Box 1 VAT on EU acquisitions 250, , Box 2 1,066, Box 6 189, Box 3 Input VAT Expenditure cost UK acquisitions 250, , EU acquisitions 250, Box 9 50, Overheads Rent 50, Light & Heat 4, May include at 5% Miscellaneous expenses 14, , , Fixed assets acquired 36, , , Box 7 110, Box 4 VAT PAYABLE (Box 3 - Box 4) 78, Box 5 Page 20 of 34

21 Solution 2 (Cont d) 7 October 2017 Mr E Hamster Finance Director Rugrat Limited Dear Mr Hamster Both Output VAT & Input VAT have been understated and the client has underpaid VAT as a result of their errors by nearly 80,000 An error of this magnitude is likely to give rise to a penalty for a serious mis-declaration of VAT and in addition interest will also be payable on VAT underpaid. VAT on sales in particular has been significantly miscalculated and the reasons for this are not immediately apparent. HMRC may remove the annual accounting facility from this client as there do not appear to be reasonable evidence in support of figures being used The company is still within the monetary limits that permit use of the scheme however ( 1.35m). Cash accounting scheme would also seem to be a good idea as Debtors on the balance sheet exceed creditors and same monetary limits apply (however because of the errors and underpayment of VAT this could be removed by HMRC) and this may have serious working capital implications of the business with the earlier payment of Output VAT. If you require any further information please do not hesitate to contact. Yours faithfully A Technician Page 21 of 34

22 Solution 3 QuarterJack Ltd Capital Allowances Computation AIA Main Pool Special Rate Pool WDV b/f 132,000 Disposal (29,750) Proceeds (ltd) 102,250 Additions not qualifying for AIA Additions qualifying for AIA Design Equipment 40,000 Boardroom table 5,000 45,000 25,000 Capital Allowances Claim Less AIA (45,000) 45,000 % (18,405) 18,405 8% (2,000) 2,000 Total Allowances Claim 65,405 Page 22 of 34

23 Computation of adjusted profits chargeable to corporation tax Net Profits as per accounts 353,785 Add Installation of central heating system 12,000 Legal services re new 7 yr lease 370 Depreciation on plant & machinery 3,067 Depreciation on vehicles 2,063 Premium on lease written off 14,000 Deduct 385,285 Investment income 3,000 Profit on sale of investments 7,525 Part premium re lease (1760 x 3/12 for three months) ,965 31,500 Trade Profits (as adjusted) Less Capital Allowances 374,320 (65,405) 308,915 Page 23 of 34

24 Solution 3 (Cont d) Computation of mainstream corporation tax payable y/e 31 March Trade Profits 308,915 Interest Income 1,200 Chargeable gain 7,525 Profits chargeable to corporation tax 317,640 19% on 317,640 60, Page 24 of 34

25 Solution 4 (a) Mrs Philomena Molloy Computation of the balance of income tax payable Total non-savings dividend Income income savings inc income Income -Occupational pension - Sunny Drapes Pension Co 19,920 19,920 -Retirement pension 5,716 5,716 Bank deposit interest 2,300 2,300 Dividends Personal allowance 25,778 25,636 2, (11,500) (11,500) 14,278 14,136 2, Page 25 of 34

26 Tax payable thereon at basic rate 20% 2, at savings rate (PSA) 0% 20% at dividend rate DA 240@0% 3, PAYE Tax payable (b) See P48 Manual Page 26 of 34

27 Page 27 of 34

28 Solution 5 a) Thomas Gross Sales proceeds 115,000 Deduct allowable costs on sale Estate agents fees 1,100 Solicitor s fees 560 1,660 Net Sales Proceeds 113,340 Deduct Original acquisition cost (1,600) Gain before principal private residence relief 111,740

29 c/f 111,740 Less PPR Relief (Note 1) (31,579) 80,161 Letting exemption Lower of: (1) Gain attributable to letting (198/276 x 111,740= 80,161) OR (2) PPR Relief (Note 1) OR (3) 40,000 (31,579) Annual exemption (11,300) Chargeable capital gain on disposal of residence 37,282 Capital Gains Tax payable* Gain up to the remaining basic rate band (33,500 20,000)= 13,500* 18%= 2, Gain remaining in excess of basic Rate Band (37,282-13,500)= 23,782*28% = 6, , Page 29 of 34

30 Period of ownership (Months) Actual or deemed occupation (Months) NOTE 1 Computation of principal private residence exemption Occupation by Thomas Employment abroad - property let let at a commercial rent Thomas working in Lisburn 78 - Last 18 months - let at commercial rent but deemed occupation up to date of sale TOTAL Thus PPR Relief = 111,740 x (78/276) = 31,579 Page 30 of 34

31 Solution 5 (cont d) b) Joseph -sale of Pharmacy Total Premises Goodwill 01/02/2018 Disposal proceeds 1,170, , ,000 deduct selling costs = ( 10,300-2,500) (7,800) (5,000) (2,800) 1,162, , ,200 Less Original costs - 01/09/97 (365,500) (263,000) (102,500 ) 796, , ,700 Less capital losses b/fwd (17,000 ) Net Gain before entrepreneurs' relief 779,700 Annual CGT exemption 11,300 Chargeable capital gain on disposal of business 768,400 Capital Gains Tax payable on gains qualifying for ER 10% 76,840

32 Multiple Choice Question Solution 6 Answer Workings 1 A Fees charged by a dentist in the UK 2 C Input VAT cannot be reclaimed in full 3 A By set off against total income of W ltd in the previous 12 months 4 B 01-Jul-18 5 C 24,250 6 C (18,100+22,600 = 40,700 X 28%) = 11,396 7 C Legal fees for purchase of a new building 8 B 43,870 (450,000-11,300)= 438,700 x 10% 9 B 17,120 (ie (8% X (2/3 x21,000)) 10 B 47 (BEING 50% OF THE VAT)( 470x20%x0.5)

33 Solution 7 A) (i) Memorandum for discussion with Celestine (client) The June VAT return should include the following figures: Output Tax 20,000 x 9.5%* = 1,900 Input tax : Nil + ( 4,000 x 20%)** = 800 Payment due: 1,100 *In the first year of VAT registration, a discount of 1% is given on the flat rate applied ** Input VAT can still be claimed on capital assets which cost at least 2,000 (inc VAT) otherwise NO Input VAT would be claimed (ii) In the accounts, turnover is shown as gross turnover minus output VAT paid under the flat rate scheme. Expenses are shown inclusive of irrecoverable input VAT (iii) If VAT is paid by cheque, the due date for submission of the VAT return and payment for the period ended 30 June 2017 is 7 August 2017, if payment is made electronically B) 7 October 2017 ARC Accountants Mr John Joiner Plastra Construction Ltd Any Park Any Town Dear John Construction Industry Scheme Further to our recent telephone conversation, you will find the following advice useful. Gross Payments To qualify to be paid gross, you must pass three tests set by HM Revenue & Customs. The tests are as follows: The Turnover Test The company must show a construction turnover of at least 30,000 for each director in the 12 months before application is made. This is the standard test. The Compliance Test The company and the directors in the 12 months before application is made must: * be up to date with all tax returns * have paid all tax & NIC (including payroll PAYE &CIS deductions) by the due dates

34 The Business Test Solution 7 (Cont d) The company must show it carries on construction work in the UK and has a bank account. You will need to set out compliance with these tests in the relevant HM Revenue & Customs' application form. Sub-contractor Payment To give you an indication of how tax is deducted for CIS, I have shown below an example deduction: Gross amount of invoice 1, % deduction is taken from the Labour-only element and before VAT is applied ie 20% * 600 = 120. Therefore payment to make to sub-contractor = 1, = 1,104. Yours sincerely D Accountant Page 34 of 34