Accounting Technicians Ireland 1 st Year: August 2017 Paper: TAXATION (Republic of Ireland) Monday 21 August 2017 09.30 a.m. to 12.30 p.m. INSTRUCTIONS TO CANDIDATES PLEASE READ CAREFULLY For candidates answering in accordance with the law and practice of the Republic of Ireland. Candidates should answer the paper in accordance with the appropriate provisions up to and including the Finance Act 2015. The provisions of the Finance Act 2016 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 from SECTION A. Answer ANY TWO of the three questions from 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 inserts are enclosed with the paper: Tax Reference Material Page 1 of 10 Taxation (ROI)(TXR) A2017
SECTION A Answer ALL THREE questions in this Section. QUESTION 1 Mary Brown commenced to trade as a cake manufacturer on 1 March 2016. She has not registered for VAT as yet. Her taxable supplies excluding VAT for the first 12 months of trading were as follows: March 2016 1,200 April 2016 2,600 May 2016 3,100 June 2016 1,600 July 2016 1,800 August 2016 2,200 September 2016 4,500 October 2016 5,900 November 2016 6,200 December 2016 6,200 January 2017 11,600 February 2017 11,800 Notes: On 1 st May 2016 Mary bought a van for 8,000 including VAT in order to deliver her cakes to various locations. She also spent 4,200 excluding VAT on the purchase of a special oven from Italy on 1 May 2016, this oven was delivered on 12 th May 2016. Requirement (a) Explain to Mary when she should register for VAT using the details of turnover as above in your explanation. (5 marks) (b) Write brief notes on the VAT treatment of the van and the importation of the oven. (5 marks) (c) Explain to Mary the conditions for the cash receipts basis of accounting for VAT and the benefit of using the cash receipts basis for the business owner. (d) Outline four items of expenditure that are disallowed as an input credit for VAT. Page 2 of 10 Taxation (ROI)(TXR) A2017
QUESTION 2 The following multiple choice question comprises 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. N.B. Each part carries (2 Marks) Total 20 Marks Candidates should answer this question by ticking the appropriate boxes on the special answer sheet which is contained within the answer booklet. (1) There is no charge to benefit in kind on company vans where certain conditions are met. Which one of the following is NOT one of these conditions: - (a) The employee is required to keep the van at their residence (b) The van must be new (c) The employee is prohibited from using the van for private purposes (d) The employee is away from their base at least 80% of the time (2) Which of the following is NOT one of the five fundamental principles for accountants set out by the International Federation of Accountants: - (a) Integrity (b) Objectivity (c) Loyalty (d) Confidentiality (3) Pat received a net dividend from the UK of 200 (UK tax credit was 40). What amount should Pat include in his Income Tax return for 2016: - (a) 200 (b) 240 (c) 160 (d) Nil Page 3 of 10 Taxation (ROI)(TXR) A2017
QUESTION 2 Cont. (4) Mary is aged 37 and has income from self-employment of 42,000 in 2016. Mary contributed 2,400 to a Revenue approved pension scheme during 2016 and a further 1,000 on 15 th March 2017. The amount that can be deducted in respect of pension contributions in 2016 amounts to:- (a) 1,000 (b) 2,400 (c) 3,400 (d) 5,000 (5) Joey commenced trading on 1 July 2015 and prepared accounts showing the following: 4 months to 31 October 2015 Tax adjusted profits 16,000 10 months to 31 August 2016 Tax adjusted profits 60,000 12 months to 31 August 2017 Tax adjusted profits 76,000 What are Joe s assessable profits for 2016? (a) 16,000 (b) 60,000 (c) 68,000 (d) 76,000 (6) Paul Doyle runs his own consulting business. He has taxable Case II income from his business of 15,000 for 2016. Paul also has a small pension from a previous employment. In 2016, he received 7,000 from his pension. What is the total amount of Paul s earned income tax credit for 2016? (a) 1,650 (b) 550 (c) 250 (d) Nil Page 4 of 10 Taxation (ROI)(TXR) A2017
QUESTION 2 Cont. (7) Stacy is 32 years old and has taxable income from self-employment of 25,000 for 2016. She made the following pension contributions to a Revenue approved pension scheme. Paid February 2016 1,700 Paid March 2017 1,200 Paid December 2017 3,000 Contribution carried forward from 2015 200 What is the relief available for 2016 for pension contributions? (a) 1,900 (b) 3,100 (c) 5,000 (d) 6,100 (8) A P35L is a listing of all employees for the year. Which of the following details are NOT required on the P35L: (a) Name and PPS number of employee (b) Total Taxable Pay/Net Tax (c) Details of income of employee s spouse (d) Employee PRSI and USC (9) An insurance broker purchased computer equipment costing 5,000 excluding VAT at 23%. How much VAT can the insurance broker reclaim on this purchase? (a) 935 (b) 1,794 (c) Nil (d) 2,200 (10) Sheila is a business consultant and is registered for VAT. She did not file her November/December 2016 VAT return. In March 2017, the Revenue issued Sheila with a VAT estimate for the period amounting to 10,000. Sheila calculated the VAT due amounting to 4,000. Assuming Sheila pays and files her VAT return on 15 April 2017, how must interest and VAT is due? (a) 4,094.26 (b) 4,100.00 (c) 4,109.60 (d) 10,235.64 Page 5 of 10 Taxation (ROI)(TXR) A2017
QUESTION 3 You are employed as a newly qualified Accounting Technician by a firm of Accountants and have been asked to draft a letter to a client regarding the following matters: a) List the ten items that must be included on a VAT invoice. b) Explain the differences between flat rate expenses and round sum expenses paid to employees and the tax treatment of each. c) Outline the conditions to be satisfied for the tax credit for fees paid for Third Level Education to apply. d) Explain the circumstances under which the emergency basis of taxation will apply to an employee. SECTION B Answer TWO of the Three questions in Section B QUESTION 4 You manage the payroll for several companies and the following details refer to Paul Burke an employee of AFZ. Paul Burke 8946359Y Paul started with AFZ straight from college on 1 January 2016 and this is his first job. He has no P45 from a previous employer and he did not know he had to apply to the Revenue Commissioners for a Certificate of Tax Credits. He gave AFZ his PPS number on commencement of his employment. He is paid 4,200 per month. In addition to managing payroll you also assist in the preparation of tax returns for clients. The following information refers to Sally Jones. Sally is a self-employed crafter. She has Case I tax adjusted profits of 125,000 in 2016. She paid 12,000 into a Revenue Approved Pension scheme in 2016. Sally is 45 years old. Requirement (a) Calculate Paul s take home pay for the three months January, February and March 2016. (b) Outline the purpose of a P30 form and state the filing date. (c) Calculate Sally s PRSI and USC for 2016. (12 Marks) (3 Marks) Page 6 of 10 Taxation (ROI)(TXR) A2017
QUESTION 5 Mia worked for Big Bank Limited for 15 years. She decided that after the financial crash she needed a change of lifestyle and followed her dream of setting up a business as a furniture manufacturer. She started in April 2013 making the furniture from her shed in Gorey, Co Wexford. Very quickly her name became known and she had to rent a premises in Gorey Business Park from 1 April 2015. She has prepared her accounts for the year ended 31 st March 2016 and would like your help to work out her taxable profit. The accounts for the year ended 31 st March 2016 as prepared by Mia are reproduced below: Notes Sales 202,345 Opening Stock. 3,200 Purchases (1) 95,423 98,623 Closing Stock (4,562) (94,061) 108,284 Add Rental Income (2) 1,400 Dividends from shares (3) 250 1,650 109,934 Less Loss on sale of van (4) 500 Wages. (5) 22,350 Light and Heat (6) 2,450 Membership.. (7) 6,450 Travel (8) 1,350 Depreciation 6,540 Bad Debts 2,780 Rent 14,000 Rates (9) 1,000 General Bad Debt Provision.. 1,500 Insurance (10) 2,700 Entertainment. (11) 2,650 Sundry. (12) 18,520 (82,790) Net Profit 27,144 ====== Page 7 of 10 Taxation (ROI)(TXR) A2017
QUESTION 5 Cont Notes (1) Purchases The purchases figure includes 1,550 in respect of a new three-piece furniture set that Mia bought for her house in Dublin in January 2016. Mia was thrilled to buy this because for three years she has been looking for the perfect couch and finally found it on a day trip to Drogheda. (2) Rental Income In October 2015 Mia realised that she was only using 70% of her premises. With her landlord s permission she rented out the other 30%. The rental income figure includes payment by the tenant of 100 towards painting the rented part of the premises. (3) Dividends The dividends were received net of dividend withholding tax from shares Mia held in Cement for Life Limited, a publically traded building company. (4) Loss on sale of van Mia realised in late 2015 that her van was not big enough for all the furniture deliveries as she had started by request to make larger pieces. Mia sold the old van for 5,200 which she felt was fair as after all she had only paid 5,700 seven years ago for it. She bought a new van costing 12,000 and this is included in sundry expenses. (5) Wages Mia paid herself 200 a week as a wage 10,400 Staff wages. 7,500 Interest on late payment of tax... 1,200 Preliminary tax payment for Mia... 3,250 22,350 Included in staff wages is 1,000 that Mia paid Noeleen, a cleaner who cleans Mia s house once a week. (6) Light and Heat Mia pays light and heat for her warehouse. 30% of the cost relates to the portion of the warehouse that she rents out to the tenant. (7) Membership Local gym membership for Mia.. 450 Cost of stand at furniture exhibit in RDS... 5,000 Membership of an Accounting Body. 1,000 6,450 Page 8 of 10 Taxation (ROI)(TXR) A2017
QUESTION 5 Cont (8) Travel 20% of the travel costs relate to a trip Mia took to Hawaii to celebrate her 40 th birthday. (9) Rates This figure includes 120 in respect of the local property tax for Mia s home. The balance is business rates. (10) Insurance The insurance cost is made up of the following expenses: Premises insurance.. 1,500 Loss of profits insurance for business 700 Private medical insurance.... 500 2,700 Included in the private medical insurance costs is 400 for Mia and 100 for Dorothy her part time employee. (11) Entertainment Staff Christmas party 650 Gifts to customers 800 Mia s birthday party for staff and friends 1,200 2,650 Included in Mia s birthday party costs is 300 towards repainting the office and warehouse where the drinks reception was held. (12) Sundry Van. 12,000 Advertising 5,500 Stationery.. 1,020 18,520 Included in advertising is 1,250 that Mia paid for a banner to fly from a plane advertising her furniture business. Requirement Compute Mia s Schedule D Case 1 tax adjusted profits for the year ended 31 st March 2016. Page 9 of 10 Taxation (ROI)(TXR) A2017
QUESTION 6 Derek and Ciara are married and have two boys under 5 years. Derek and Ciara are both 45 years old. Details of their respective income and outgoings are as follows: Derek has been a self-employed painter since 1 March 2015. His tax adjusted profits since he commenced trading are as follows: Tax adjusted profits per accounts are as follows: Period ended 31 st December 2015 24,000 Year ended 31 st December 2016 36,000 Year ended 31 st December 2017 32,000 Derek owns a residential property which was rented in 2016. Derek received 800 per month in rent for 11 months of 2016. The rent was due as normal on 1 December 2016 but this was not received until 15 th January 2017. He paid the following amounts in 2016 in relation to the rented property: Mortgage interest 5,800 Residential Tenancy Board 125 Painting 356 New beds 560 Derek contributed 300 a month to a Revenue approved pension scheme and also paid 100 per month for permanent health insurance. Ciara is an employee of Fit for Life Foods Ltd and she earned (excluding bonuses and BIK) 65,000 gross in 2016 and PAYE deducted per form P60 amounted to 32,500. In addition to her salary she was paid a bonus of 1,600 on 14 May 2016 based on sales achieved in 2015. In February 2017 she received a bonus of 2,750 based on her sales achievement in 2016. As recognition of being such a dedicated worker her employers paid her gym membership for 2016 which cost 1,500. Ciara also got a voucher for the local supermarket worth 200 from her employer on 1 December 2016 for being on time to work all year. Requirement Prepare an income tax computation for 2016, in respect of Derek and Ciara, on the basis that they are jointly assessed. For the purposes of answering this question you can ignore PRSI and USC Page 10 of 10 Taxation (ROI)(TXR) A2017