Paper 9 (LSO) Preparing Taxation Computations

JUNE 2011 STUDY GUIDE CERTIFIED ACCOUNTING TECHNICIAN EXAMINATION Paper 9 (LSO) Preparing Taxation Computations

Introduction This booklet contains the Study Guide for the ACCA's Certified Accounting Technician Paper 9 (LSO): Preparing Taxation Computations. The Study Guide is designed to help you plan your studies and to provide more detailed interpretation of the syllabus for ACCA s Certified Accounting Technician examinations. It contains both the Syllabus and the Study Sessions for the paper, which you can follow when preparing for the examination. The Syllabus outlines the content of the paper and how that content is examined. The Study Sessions take the syllabus and expand it into teaching or study sessions of similar length. These sessions indicate what the examiner expects of candidates for each part of the syllabus, and therefore gives you guidance in the skills you are expected to demonstrate in the examinations. The time to complete each session will vary according to your individual capabilities and the time you have available to study. Tuition providers offering face-to-face tuition are recommended to design courses with a minimum of two hours tuition per study session. However, repeated coverage of the material is vital to ensure your understanding and recall of the subject. Be sure to practice past examination questions to consolidate your knowledge and read your student accountant magazine regularly. If you have any queries concerning the study guide, please direct them to: Qualifications Department ACCA 29 Lincoln's Inn Fields London WC2A 3EE United Kingdom tel: +44 (0)20 7059 5833 fax: +44 (0)20 7059 5968 e-mail: info@accaglobal.com Additional information can be accessed on the ACCA website at: www.accaglobal.com The Association of Chartered Certified Accountants January 2011 ABOUT ACCA ACCA is the largest and fastestgrowing international accountancy body with 362,000 students and 131,500 members in 170 countries. We aim to offer first choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. ACCA works to achieve and promote the highest professional, ethical and governance standards and advance the public interest. PAGE 2

AIMS To develop the ability to prepare computations of tax liability for both individuals and businesses resident in the Lesotho for the purposes of income tax, corporation tax and value added tax. In addition, to develop knowledge and understanding of the manner in which dealings must be conducted with the Lesotho Revenue Authority, including knowledge of the statutory timescales for the submission of claims and returns and the due dates for the payment of tax liabilities. OBJECTIVES On completion of this paper, candidates should be able to: prepare chargeable income for individuals and businesses calculate gross income (employment income, business income, property income and other income) prepare tax computations for individuals and businesses prepare chargeable gains and allowable losses arising on disposal of business assets and investment assets. complete and submit value added tax calculations. conduct dealings with Lesotho Revenue Authority and with clients in an appropriate manner. POSITION OF THE PAPER IN THE OVERALL SYLLABUS An understanding of the format of accounts used for sole traders, partnerships and companies from Paper 3, Maintaining Financial Records is assumed. There is no substantial integration with other papers. The coverage in Paper 9 LSO will provide the grounding for the study for the study of Paper F6 (LSO)Taxation. SYLLABUS CONTENT 1 Chargeable income for individuals and businesses (a) Adjustment of trading profits / losses to arrive at chargeable income (b) Depreciation allowances - single asset method and the pooling method (c) Treatment of assets acquired under a finance lease and by hire purchase (d) Assessments for individuals, sole traders, associations and clubs, partnerships and companies (e) Relief for losses. 2 Employment income (a) Computing employment income (b) Allowable deductions against employment income (c) Termination payments 3 Income tax computations for individuals and businesses (a) Income from employment, business, property and other income (b) Computing chargeable income (i) Gross income (ii) Allowable deductions (iii) Taxation rates (iv) Personal tax credit (c) Determination of minimum chargeable income 4 Chargeable gain computations (business and investments) (a) Chargeable persons, disposals and assets (b) Computing gains and losses from disposals (i) basic computation (ii) indexation for effects of inflation (c) Relief for allowable losses 5 Partnerships (a) Principles of taxation of partnerships (b) Calculations of partnership income or loss (c) Taxation of partners 6 Corporation tax computations for companies (a) Basic corporation tax computations (b) Accounting periods (c) Business income chargeable to corporation tax (d) Chargeable gains/losses (e) Computing corporation tax liability (f) Relief for losses 7 Withholding of tax at source (a) Withholding obligations (b) General provisions relating to withholding of tax at source PAGE 3

8 Administration of tax (a) Return of income and self assessment system (b) Assessments (c) Objections and appeals (d) Recovery and refunds of tax (e) Payment of income tax including dates of payment (f) Payment of corporation tax including advance corporation tax (ACT) quarterly instalments (g) Dealing with Lesotho Revenue Authority Chargeable gains of companies Reinvestment relief Negligible value claims Wasting assets and leases Incorporation relief Partnerships Formation, reconstitution or Dissolution of a partnership Determination of adjusted cost base of partner's interest 9 Value added tax (VAT) (a) Scope of VAT (b) Basic principles of VAT (i) types, place, time of supply and imports (ii) calculting VAT payable (c) VAT invoices and records, and accounting for VAT (d) Registration and cancellation of vendors (e) Administration of VAT Corporation tax of companies Anti-avoidance Mergers and acquisitions Incorporation and liquidation roll over Reconstructions Change in control of companies foreign tax credit Double taxation agreements and treaties EXCLUDED TOPICS The following topics are specifically excluded from Paper T9 (LSO): Chargeable income for individuals and businesses Badges of trade Successions Change of accounting date Long life assets Depreciation allowances on hotels and intangible assets Limited liability partnerships Personal service companies Value added tax: Group registration Default interest. KEY AREAS OF THE SYLLABUS Calculating an individual's employment chargeable income Computation of business chargeable income Basic income tax computations of individuals and businesses Basic corporation tax computations of companies Basic chargeable gains and allowable losses Basic value added tax computations. Employment income Detailed operation of the PAYE system Share incentive schemes Income tax computations Foreign income of partnerships and companies Double tax relief APPROACH TO EXAMINING THE SYLLABUS Paper 9(LSO) is a three-hour written paper with 15 minutes reading time. The examination will be predominantly computational and will comprise of 2 parts. There will be no optional parts. Part A will comprise of 10 multi-choice questions (MCQ) each worth 2 marks. This will total 20 marks. PAGE 4

Part B will comprise of 4 long questions. Question 1 will be on any area of income tax and be worth between 23 and 27 marks. Question 2 will be on company tax or partnership tax and will be worth 18 to 22 marks. Question 3 will be on any area of the syllabus not examined elsewhere and will be worth between 18 to 22 marks. Question 4 will be on Value Added Tax (VAT) and will be worth 13 to 18 marks. Chargeable gains, fringe benefits tax may be examined either as a separate question or as part of an income tax or corporation tax scenario. Calculations should be made to the nearest month and the nearest M. Knowledge of section numbers will not be needed to understand questions in this paper, nor will students be expected to use them in their answers. If students wish to refer to section numbers in their answers, they may do so and will not be penalised if old, or even incorrect section numbers, are used. The Study Sessions section provides more detailed guidance on the syllabus. ADDITIONAL INFORMATION ACCA reserves the right to examine anything contained within the study guide at any examination session. This includes knowledge, techniques, principles, theories, and concepts as specified. For the financial accounting, audit and assurance, law and tax papers except where indicated otherwise, ACCA will publish examinable documents once a year to indicate exactly what regulations and legislation could potentially be assessed within identified examination sessions. ACCA LEARNING MATERIALS ACCA s Approved Learning Partner - content (ALP-c) is the programme through which ACCA approves learning materials from high quality content providers designed to support study towards ACCA s qualifications. ACCA has one Platinum Approved Learning Partner - content which is BPP Learning Media. In addition, there are a number of Gold Approved Learning Partners - content. For paper based examinations regulation issued or legislation passed on or before 30th September annually, will be assessed from June 1st of the following year to May 31st of the year after. Please refer to examninable documents for the paper for further information. Regulation issued or legislation passed in accordance with the above dates may be examinable even if the effective date is in the future. The term issued or passed relates to when regulation or legislation has been formally approved. The term effective relates to when regulation or legislation must be applied to an entity transactions and business practices. Tax rates and allowance tables will be provided at the front of the examination paper. For information about ACCA s Approved Learning Partners - content, please go ACCA s Content Provider Directory. At present, there are no approved learning materials for this paper. ACCA is working with its Approved Learning Partners - content to provide these. For the most up to date information on subscribers to the Directory who may provide useful materials, although these will not have been Quality Assured by ACCA, please go to ACCA s Content Provider Directory. You will also find details here of any other learning materials which the Examiner has suggested may be useful for students. ACCA s Content Provider Directory can be found here http://www.accaglobal.com/learningproviders/alpc/ content_provider_directory/search/. In addition CAT and FIA examiners may also suggest other text PAGE 5

books where appropriate, which students can refer to when widening their reading beyond the approved study texts. These are listed at the the end of this study guide. Relevant articles will also be published in student accountant. (b) (c) self employment and its implications Identify the principal categories of deductions and illustrate their scope Calculate termination payments STUDY SESSIONS 1 Introduction to the Lesotho tax system (a) Identify the main sources of Lesotho tax legislation (b) Describe the organisation of the Lesotho Revenue Authority and its terms of reference including the appeals system (c) Describe the objections and appeals process. 2 Introduction to personal taxation (a) Explain the scope of income tax with regard to chargeable income for individuals and businesses. (b) Distinguish between income and gains/losses on disposal of business and investments assets. (c) Outline the key elements of a personal income tax computation including gross income and exempt income. 3 Income tax- basic computation (a) Explain the entitlement to and the amount of the personal tax credit (b) Property income (i) Identify the categories of property income (ii) Calculate taxable income from dividends, interest, rent and royalties (c) Prepare examples of income tax computations using standard layout (d) Explain and illustrate the treatment of gains/losses on the disposal of assets (e) Explain and illustrate the differences between total tax liabilities (f) Explain and calculate minimum chargeable income 4 Income tax income from employment (a) Explain the difference between employment and 5 Income tax income tax from individuals and businesses (a) Explain the principles of deductible and non deductible expenditure (b) Prepare chargeable income computations (c) Explain and apply relief for losses. 6 Depreciation allowances (a) Explain the principles relating to depreciation allowances and ensure that assets are correctly grouped/classified (b) Prepare depreciation allowance computations using both the pooling method and the single asset method (c) Illustrate the difference between the pooling method and the single asset method 7 Finance leases and hire purchase contracts (a) The implications of acquiring assets under a finance lease or a hire purchase contract (b) Define a finance lease for tax purposes (c) Compute the allowable interest and depreciation allowances for assets acquired under both finance leases and hire purchase contracts 8 Partnerships (a) Explain the principles of taxation for partnerships (b) Determine partnerships residence (c) Calculate partnership income/loss (d) Calculate the individual partners' tax (e) Demonstrate the effect of changes in partnerships 9 Superannuation contributions (a) Explain and calculate the relief available for contributions to an employer's superannuation fund for both employer and the employee PAGE 6

(b) Explain and calculate the relief available for contributions to a self-provided superannuation fund (c) Explain and caculate the relief available for contributions to a non-resident superannuation fund (d) Describe the treatment of a complying superannuation fund 10 Chargeable gains/allowable losses (a) Identify chargeable persons, chargeable assets and chargeable disposals (b) Explain the circumstances in which market value will be used as either the transfer value or the base cost (c) Explain and calculate exemptions and reliefs (d) Calculate gain/loss on disposal on business and investments assets (e) Explain and illustrate how relief for losses is given 11 Corporation tax - compute chargeable income (a) Explain the scope of corporation tax including the concepts of residence and source (b) Accounting periods (c) Identify the different classes of income (d) Explain and illustrate the treatment of gains/losses on the disposal of business assets (e) Compute chargeable income for Lesotho resident companies 12 Corporation tax - computation of tax liability (a) Explain the rates of corporation tax to be applied (b) Calculate the corporation tax liability for Lesotho resident companies (c) Calculate corporation tax payable for periods longer and shorter than 12 months (d) Explain and apply relief for losses 13 Withholding tax (a) Withholding tax obligations (i) Withholding of tax by employers (ii) Payments to residents contractors (iii) Payments of interest (iv) Payments to superannuation (v) International payments (b) General provisions relating to withholding of tax at source (c) Withholding tax certificates 14 Administration of tax (a) Describe the administrative procedures relating to returns of income and the corporation tax assessment rules, including the filing of returns and filing dates, and cases where returns are not required (b) Descrive the administrative procedures relating to assessments including deemed assessments, default and special assessments and amended assessments and enquiries (c) Outline the process for the collection and refund of tax (d) Identify the due dates for the payment of income tax and corporation tax (e) Explain the processes for the payment of tax, including tax by instalments, advance corporation tax and the quarterly payments system (f) Calculate instalments due (g) Explain how a repayment of overpaid tax can be obtained 15 Fringe benefits tax (FBT) (a) Identify and calculate the taxable value and taxable amount of fringe benefits (b) Calculate the fringe benefits tax liability 16 Value added tax (VAT) (a) Explain the scope of value added tax (b) Illustrate the need for registration - compulsory, voluntary, exemption and deregistration (c) Explain and contrast the types of supply - standard, zero rated and exempt (d) Compute VAT liability - input tax, output tax, bad debts, discounts and irrecoverable debts PAGE 7

(e) (f) (g) (h) (i) Explain the time of supply/tax point for inputs and outputs Outline the process for accounting for VAT Explain the detail required on VAT invoices Explain the treatment of imports and exports Detail the basic VAT adminsitration requirements - returns and assessments - objections and appeals - collection and recovery - refund of value added tax - additional tax and offences 17 Revision of income tax 18 Revision of taxation of chargeable gains 19 Revision of corporation tax 20 Revision of VAT PAGE 8