ACCA PAPER F6 TAXATION (UK) December 2011 Exam Commentary

ACCA PAPER F6 TAXATION (UK) December 2011 Exam Commentary

GENERAL IMPRESSION A tough paper but a well prepared candidate should have passed. Q1: Income tax question involving a grandfather, father and son. The father was self employed and the son was employed. Tested calculation of their income tax liabilities and national insurance contributions. The final section presented some basic tax planning. Q2: Corporation tax question testing computation of a trading loss, relief of trading losses and computation of VAT payable. Q3: Capital gains tax involving an individual selling six assets. Question tested principal private residence exemption and letting relief, wasting assets, exempt assets, part disposals, inter-spouse transfers and gift relief. Q4: Property income involving three properties and a rented room. Q5: Group relief, double tax relief and inheritance tax on a gift to a trust. QUESTION REVIEW Question 1 25 marks This question presented candidates with three individuals, a grandfather who was retired and drawing his pension, a father who was self employed and a son who was employed with benefits. Part (a) required candidates to compute their respective income tax liabilities for 2010/11 for 15 marks. This style of question has been adopted before by this examiner and is an excellent way of testing many income tax syllabus elements. For the grandfather the restriction of the personal age allowance was addressed. For the father the restriction of the personal allowance was examined as well as the extension of the basic rate band for the gift aid donation. For the son car and fuel benefit were examined plus the implication of dealing with an additional rate taxpayer. Part b) required the computation of the three individual s national insurance contributions for 2010/11 for 4 marks. Part c) required candidates to explain to the father and son with calculations how their income tax liabilities would be reduced if: (i) The father put 8,600 (gross) into an personal pension scheme for 3 marks

(ii) The son s contribution of 8,000 towards the car and private fuel had been allocated on a more beneficial basis for 3 marks Overall a fair question which should have presented few problems. Part c) was the hardest part and required some careful thought and ideally needed to use marginal tax rates to compute the tax savings. Question 2 30 marks A corporation tax and VAT question. Part a) required candidates to state when an accounting period starts and when it finishes for corporation tax purposes for 4 marks. This requirement has been tested previously and should have been done well by most. Part b) required the calculation of Starfish s trading loss for its final 3 month accounting period to 31 March 2011 for 12 marks. This involved a fairly typical profit adjustment exercise and a capital allowance computation. Candidates needed to be careful with the capital allowance computation to recognise that as this was the final accounting period no writing down allowances would be claimed, just balancing allowances and charges. Rather unusually VAT was included in the purchase price of the additions and disposals which has not been seen before. Part c) required candidates to compute the taxable total profits of all the accounting periods in the question assuming Starfish claims relief for its trading losses in the most beneficial way for 5 marks. Candidates were presented with a trading loss for the first accounting period of trade as well as a trading loss in the final three months of its trade and needed to demonstrate how the loss relief would work. Provided candidates laid out their answers in a clear columnar approach and dealt with the first loss first this should have presented few problems. The only difficult aspect was remembering carry back in the final period is for 36 months which caused a straddling problem with one of the periods. Part d) i) required candidates to calculate the VAT payable for the final VAT return to 31 March 2011 for 7 marks

Part d) ii) required candidates to explain with supporting calculations how their answer to d) i) would differ if Starfish was sold as a going concern for 2 marks This section required a standard VAT calculation which should have posed few problems. However for part d) i) candidates needed to include the VAT payable on the sale of the inventory and the VAT on the capital allowance items. A fair question which required careful time allocation to ensure all parts were answered adequately. Question 3 15 marks This question involved an individual disposing of six assets. Candidates were required to compute the individual s taxable gains for 2010/11. The first disposal concerned a principal private residence where the individual had been absent for various reasons. Computing the periods of actual and deemed occupation was challenging in this question and required a clear knowledge of the rules. Letting relief was also examined. The second disposal concerned a wasting asset which has been seen before in this exam and provided candidates remembered to deperciate the cost should have gone well. The third disposal was of a non wasting chattel where cost and proceeds were both under 6,000 and therefore exempt. The fourth disposal was of a car and therefore also exempt. The fifth disposal was a part disposal of some land. There was however a slight twist to this part. The land in question had been inherited by the wife and then transferred to the husband who then sold some of the acres. Candidates needed to recognise that land at death is transferred at its probate value and to appreciate that an inter-spouse transfer is at no gain/no loss. The final disposal was the sale at an undervalue of some unquoted shares where gift relief was to be claimed. The first disposal would have caused the most problems but provided candidates left this till last the rest of this question was reasonable.

Question 4 15 marks Part a) required candidates to calculate the individual s property business loss for 13 marks. Question presented three properties. The first was a furnished holiday let, the second had been sublet involving the receipt of a premium on the grant of a short lease and the third was let unfurnished. Rent a room was also tested. Part b) required candidates to advise the individual of ways her property losses could be relieved for 2 marks. It s been a while since property income has been tested as a question in its own right. This question was reasonable but did require some careful thinking in parts. Question 5 15 marks This question was in three separate parts testing group relief, double tax relief and inheritance tax. This may have appeared a strange combination of topics to include in one question but was a clever way for the examiner to test a number of syllabus areas and may be a style we see in the future. Part a) required candidates to advise the parent as to the maximum group relief that could be claimed from its 100% owned subsidiary and to clearly identify any losses that could not be surrendered by the subsidiary for 5 marks. Candidates were told not to calculate either companies corporation tax liabilities. The question presented both current year trading losses as well as trading losses brought forward and capital losses both current and brought forward. To score well candidates needed to be clear which losses could be group relieved and which could not. Part b) for 4 marks required the calculation of the company s corporation tax liability after double tax relief. This part involved a company with two overseas branches. The tricky part of the question was allocating the gift aid donation appropriately as there was insufficient UK income and candidates therefore had to decide out of which overseas income to take the balance. The question did however advise candidates to layout their answer in a columnar format which should have helped candidates identify the problem.

Other than that aspect this part should have posed few problems. Part c) required the calculation of the inheritance tax payable on a gift to a trust and the additional inheritance tax payable if the individual dies within 7 years for 6 marks. Part c) should have presented few problems.