Programme BSc (Hons) Banking and International Finance BSc (Hons) Financial Services with Law COHORT BBIF/11B/12A /14B/FT/PT BFSL/13B/FT Examinations for Academic Year 2016 2017 Semester II / Academic Year 2017 Semester I MODULE: BUSINESS AND INTERNATIONAL TAXATION MODULE CODE: ACCF3108 DURATION: 2 HOURS Instructions to Candidates: 1. This question paper consists of Section A and Section B. 2. Section A is compulsory. 3. Answer any two questions from Section B. 4. Non programmable calculators are allowed but relevant workings must be clearly shown. 5. Always start a new question on a fresh page. 6. Total Marks: 100. This Question Paper contains 4 questions and 10 pages. This Question Paper is printed on BOTH SIDES. Page 1 of 10
SUPPLEMENTARY INSTRUCTIONS: 1. You should assume that the tax rates and allowances for the tax year 2015/16 and for the financial year to 31 March 2016 will continue to apply for the foreseeable future unless you are instructed otherwise. 2. Calculations and workings need only be made to the nearest. 3. All apportionments should be made to the nearest month. 4. All workings should be shown. TAX RATES AND ALLOWANCES The following tax rates and allowances are to be used in answering the questions. Income tax Normal rates Dividend Rates % % Basic rate 1 31,865 20 10 Higher rate 31,866 to 150,000 40 32.5 Additional rate 150,001 and over 45 37.5 A starting rate of 10% applies to savings income where it falls within the first 2,880 of taxable income. Personal allowances Born on or after 6 April 1948 10,000 Born between 6 April 1938 and 5 April 1948 10,500 Born before 6 April 1938 10,660 Income limit Personal allowance 100,000 Personal allowance (born before 6 April 1948) 27,000 Page 2 of 10
Car benefit percentage The base level of CO2 emissions is 95 grams per kilometre. The percentage rates applying to petrol cars with CO2 emissions up to this level are: % 75 grams per kilometer or less 5 76 grams to 94 grams per kilometer 11 95 grams per kilometer 12 Car fuel benefit The base figure for calculating the car fuel benefit is 21,700. Individual savings accounts (ISAs) The overall investment limit is 15,000. Pension scheme limits Annual allowance 2014-15 40,000 Annual allowance 2011-12 to 2013-14 50,000 The maximum contribution that can qualify for tax relief without any earnings is 3,600 Authorised mileage allowances: cars Up to 10,000 miles Over 10,000 miles 45p 25p Capital allowances: rates of allowance % Plant and machinery Main pool 18 Special rate pool 8 New cars with CO2 emissions up to 95 grams per kilometer 100 CO2 emissions between 96 and 130 grams per kilometre 18 CO2 emissions over 130 grams per kilometre 8 Annual investment allowance First 500,000 of expenditure 100 Page 3 of 10
Corporation tax Financial year 2012 2013 2014 Small profits rate 20% 20% 20% Main rate 24% 23% 21% Lower limit 1, 300,000 300,000 300,000 Upper limit 1,500,000 1,500,000 1,500,000 Standard fraction 1/100 3/400 1/400 Marginal Relief Standard fraction x (U A) x N/A Value added tax (VAT) Standard rate 20% Registration limit 81,000 Deregistration limit 79,000 Capital gains tax Rate of tax Lower rate 18% Higher rate 28% Annual exempt amount 11,000 Entrepreneurs relief Lifetime limit 10,000,000 Rate of tax 10% Page 4 of 10
SECTION A: COMPULSORY QUESTION 1: (40 MARKS) (a) Peter has both employment and trading business income. His employment income amounted to 70,000 and paid PAYE 20,000 for the tax year 2016/17. He has the following trading profit and loss account for the year ended 31 March 2017: Notes Turnover 1 900,000 Less cost of sales 2 (350,000) Gross profit 550,000 Other income 3 100,000 LESS EXPENSES: Depreciation 75,000 Motor vehicle running expenses 4 60,000 Rent and rates, light and heat 5 40,000 Legal and professional fees 6 10,000 Repairs and maintenance 7 50,000 Sundry expenses 8 50,000 Wages and salaries 9 75,000 Bad debts and provision for bad debts 10 20,000 (380,000) NET PROFIT 270,000 NOTES: 1. Turnover Turnover amounting 4,000 was not included in the income statement. 2. Cost of sales Closing stock was revalued downwards by 5% and the revalued amount is 95,000. 3. Other Income Interest (net) 8,000 Dividend (net) 27,000 Profit on disposal of plant and machinery 65,000 TOTAL 100,000 Page 5 of 10
4. Motor vehicle running expenses He used the motor car as follows, 80% for business use. 5. Rent and rates, and light and heat He used 75% of the rented building for trading purposes and 25% for personal use. 6. Legal and professional fees Accountancy and tax fees 3,000 Debt collection 2,000 Legal fees in connection with purchase of fixed assets 5,000 10,000 Accountancy and tax fees comprise of 2,000 for personal tax assessment. The debt collection includes 500 for employee s loan recovery. 7. Repairs and maintenance House renovation 3,000 Extension office premises 45,000 Repairs office 2,000 TOTAL 50,000 8. Sundry expenses Sundry expenses included 1,500 for his personal expenses, dinner with family for year end, and 30,000 tax paid in advance for the year 2016/17. 9. Wages and salaries He paid 15,000 as salary to his brother, where for the same work 10,000 is paid to the accounts clerk. 10. Bad debts and provision for bad debts Bad debts 15,000 Provision for bad debts 5,000 TOTAL 15,000 Page 6 of 10
Bad debts comprise of 10,000 for employee s loan written-off and nonrecoverable. The provision for bad debts is specific for trade debtors. 11. Capital allowances The capital allowances amounted to 90,000. (i) Compute Peter s tax adjusted profit for income tax purposes in respect of the income year 2016/2017. Calculate his tax liability and tax payable by for 2016/2017. Your computation must be supported by your workings. (30 marks) (ii) Andy had a property which he acquired for personal use in Jan 2005 for 100,000 and incurred legal fees 1,000. He disposed the property in December 2016 for 200,000 and incurred estate agency fees of 2,000. He has employment income of 35,000. Calculate the Capital Gains Tax and Income tax payable. CPI Year 2005 100 Year 2017 120 (10 marks) SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2: (30 MARKS) (a) A client want to incorporate a company in UK, he needs an advice in respect of whether the company will pay tax in UK even if he resides in France or it will be better for him to incorporate same in France and operate in UK. Advise the client on his statement. (5 marks) (b) Shane has a manufacturing business and prepares her accounts to 31 March each year. As at 1 April 2016 the tax written down values are as follows: Details General pool 300,000 Long life asset pool (Special rate pool) 150,000 Page 7 of 10
During the year ended 31 March 2017 Shane incurred the following expenditure: - Spent 550,000 on a new machinery for the factory, which is a special rate pool asset. - Purchased a new computer and related software for 30,000 and 15,000 respectively. - Spent 35,000 on a new packing machine. He also incurred 28,000 on alterations to the factory in order to accommodate the new packing machine. - Bought a car for 8,000 and used 20% for personal use. In addition she sold old machinery for 15,000 (Original cost 70,000), which was bought in year 2012. Calculate the capital allowances and Tax Written Down Value for the year ended 31 March 2017. (25 marks) QUESTION 3: (30 MARKS) You are provided on the following information from your manager for a VAT return and advice. (a) ABC Ltd VAT Return 3 months ending 31 December 2016 Three months ending 31 March 2017 Sales revenue Standard rated (excluding VAT) 400,000 300,000 Sales revenue Exempt 50,000 25,000 Input tax: Attributable to taxable supplies 60,000 50,000 Attributable to exempt supplies 4,000 3,000 Non-attributable 2,800 2,500 Total 66,800 55,500 REQUIRED: Calculate the payments that will be made by ABC Ltd to the HMRC in respect of the three months ending 31 December 2016 and 31 March 2016, based on the above data provided. (18 marks) (b) Your manager has requested you to prepare a brief on VAT registration, VAT deregistration and the impact of VAT non-filing. (12 marks) Page 8 of 10
QUESTION 4: (30 MARKS) (a) Explain the term Badges of Trade? Support your answer with relevant examples. (8 marks) (b) You are provided with the income statement of Spencer Ltd for the year end 31 March 2017. NOTES Gross profit 400,000 Other income - profit on disposal 40,000 Expenses: Depreciation and amortisation 80,000 Rent and rates 60,000 Light and heat 30,000 Motor vehicle running expenses 1 80,000 Legal and professional fees 2 20,000 Repairs and maintenance 15,000 Sundry expenses 20,000 Wages and salaries 60,700 Bad debts 3 15,000 Provision for bad debts 3,000 Subscriptions and donations 4 36,500 (385,200) Net profit 54,800 Page 9 of 10
Notes: 1: Motor vehicle running expenses The director used the company car around 20,000 miles, where 30% was for personal use and the remaining for business use. 2: Legal and professional fees Accountancy and tax fees 10,000 Legal fees in respect of purchase of warehouse 5,000 Debt collection in respect of employee's loan 2,000 Legal fees in respect of tax penalty personal 3,000 20,000 3: Bad Debts Bad debts included 8,000 for a loan given to a staff who left without notice and the loan was not recoverable. 4: Subscriptions and donations The Company paid 20,000 for political donation. 5: Plant and machinery The capital allowances for the year ended 31 March 2017, amounted to 65,000. Required 1. Calculate Company s tax adjusted trading profit for the year ended 31 March 2017? 2. Calculate the Company s tax liability for the year end? (22 marks) ***END OF QUESTION PAPER*** Page 10 of 10