November 2014 Examination PAPER 2 Business Taxation & Accounting Principles Short Form Suggested Solutions
1. If the return is filed late a flat-rate penalty of 100 is charged immediately (1/2), even where there are no amounts outstanding (1/2). Additional penalties of 10 per day (1/2) may be levied where the return is more than 3 months late (1/2). The daily penalty can be levied for a maximum of 90 days (1/2). If a return is more than 6 months late, (1/2) there will be an additional penalty of 5% (1/2) of the tax due or 300, if greater (1/2). 2. 2012/13 2013/14 Salary 5,000 5,000 Self employment 10,000 15,000 Loss relief (py) (15,000) ½ Loss relief (cy) (5,000) ½ Assessable Nil Nil Capital gain 30,000 Maximum loss relief (see working) (25,000) ½ Annual exemption (restricted) (5,000) ½ Nil Working Extension to capital gains Capital gain 30,000 Less capital loss b/f (5,000) ½ Maximum loss relief 25,000 ½ Trading loss carried forward Loss 2013/14 (50,000) Current year 5,000 (45,000) Previous year 15,000 (30,000) Extension to capital gain 25,000 Loss carried forward (5,000) ½ Capital loss c/f (5,000) ½ 3. An individual (1/2) farmer can make a claim for averaging for two successive tax years (1/2) where the profits of one year are less than 70% (1/2) of the other year. Marginal relief (1/2) is available where the lower profits exceed 70% but do not exceed 75% (1/2) of the higher year s profits. A claim would be beneficial if:
high profits in one year would result in a charge to higher rates of income tax and class 4 NIC (1/2) the personal allowance of one year would otherwise be wasted (1/2) or it would defer the payment of tax (1/2). 4. The amounts to be included in the Corporation Tax computation are calculated in accordance with generally accepted accounting principles (1/2). Both types of interest are in respect of non-trade loan relationships. (1/2) The credit and debit are aggregated (1/2). Relief for all or part (1/2) of the resulting deficit can be claimed against any other profits of the accounting period. (1/2) The deficit could also be carried back against loan relationship profits (1/2) of the previous 12 months (1/2). Any unclaimed deficit is carried forward automatically (1/2) and offset against total non-trading profits of later accounting periods. (1/2) 5. Total max (4) Main pool Special rate pool Environmentally beneficial plant Balancing charge Allowances WDV b/f 7,500 1,000 Disposal (10,000) Balancing charge (2,500) 2,500 1 Addition 15,000 100% allowance (15,000) 15,000 1 Small pool WDA (1,000) 1,000 1 ½ mark if WDA of 8% given on special rate pool instead of small pool WDA 6. Total (3) Disposal of warehouse Sales proceeds 50,000 Cost (35,000) Chargeable gain 15,000 ½ Annual exemption (10,900) ½ Taxable gain 4,100 CGT at 28% 1,148 ½ Motor vehicle exempt asset ½ Total (2) 7. Stationery Standard rated 1/2
Postage stamps Exempt 1/2 Milk Zero rated 1/2 Text book Zero rated 1/2 Insurance Exempt 1/2 Bank charges Exempt 1/2 Total (3) 8. There are two general rules for determining the place of supply of services: one for business to business (B2B) and one for business to consumer (B2C). 1/2 The B2B general rule for supplies of services is that the supply is made where the customer belongs. 1/2 The B2C general rule for supplies of services is that the supply is made where the supplier belongs. 1/2 A business belongs where it has a business or some other fixed establishment, including a branch or agency. 1/2 If there is no such establishment, the business belongs where the person usually lives. 1/2 In the case of a company, this is where it is legally constituted. 1/2 However, there are also special place of supply rules for certain services, such as those relating to land and transport. 1/2 9. The maximum is calculated using Test 1. (1/2) Using the Class 1 limits, deduct the relevant weekly Primary Threshold (1/2) from the relevant Upper Earnings Limit (1/2) and multiply that figure by 53. (1/2) Multiply the result by 12 per cent (1/2) If the earnings from either source exceed the Upper Earnings Limit (1/2) multiply the excess earnings by 2%. (1/2) Add together the results of these calculations. (1/2) This gives the annual maximum for Class 1 and Class 2 contributions. (1/2) Total max (4) 10. Financial statements are used by the following: Owners of the business - to see how their investment is performing 1 Management to see if the business is profitable 1 Employees to assess their job security 1 Creditors to assess the risk of not being paid amounts owed 1 HM Revenue & Customs to determine the tax liability 1
Banks - to check whether they should lend money to the business 1 Any 3 of the above. ½ mark per person plus ½ mark for an accompanying reason 11. Cash account Balance b/f (1/2) 100 Bank (1/2) 35,000 Sales (balancing figure) (1/2) 57,500 Purchases (1/2) 12,000 Cash gift (1/2) 500 Other expenses (1/2) 6,000 Drawings (1/2) 5,000 Balance c/f (1/2) 100 58,100 58,100 12. Appropriation statement Total Nicola John Year ended 31 July 2014 60,000 Salaries (39,000) 25,000 14,000 1 21,000 Interest (8,000) 5,000 3,000 1 13,000 Balance 50:50 (13,000) 6,500 6,500 1/2 36,500 23,500 Journal Dr Profit and loss account 60,000 1/2 Cr Nicola current account 36,500 1/2 Cr John current account 23,500 ½