Accounting Technicians Ireland 2 nd Year Examination: August 2017 Paper: ADVANCED TAXATION (Northern Ireland) Thursday 17 August 2017 2.30 p.m. to 5.30 p.m. INSTRUCTIONS TO CANDIDATES PLEASE READ CAREFULLY For candidates answering in accordance with the law and practice of Northern Ireland. Candidates should answer the paper in accordance with the appropriate provisions up to and including the Finance Act, 2016. The provisions of the Finance Act, 2017 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 in Section A, and ANY TWO of the FOUR questions in 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 insert is included with this paper. Tax Reference Material (NI) Page 1 of 12 Adv. Taxation (NI) A2017
SECTION A Answer QUESTION 1 and QUESTION 2 and QUESTION 3 (Compulsory) in this Section QUESTION 1 (Compulsory) 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) Candidates should answer this question by ticking the appropriate boxes on the special answer sheet which is contained within the answer booklet. 1. Jan ceased trading on 31 December 2016 having been self-employed for many years and completing accounts to 31 December each year. On 1 January 2016 the tax written down value of the Main pool was 7,200. On 23 March 2016 Jan purchased a Computer for 600. All of the items in the Main pool were sold for 9,800 on 31 December 2016. On cessation of trade there will be a Balancing charge of: a) 2,600 b) 200 c) 3,896 d) 2,000 2. Since 6 April 2016 Nick has let out an unfurnished freehold office building. On that date the tenant paid Nick a premium of 65,000 for the granting of a 15 year lease. How much of the premium of 65,000 will Nick include with his property business profit for the tax year 2016/2017? a) 46,800 b) 65,000 c) 18,200 d) 4,333 3. Tardez Ltd. had a Corporation Tax liability of 182,750 for the y/e 30 June 2016 which it did not pay until 31 July 2017. Tardez Ltd. is not considered a large company for Corporation Tax purposes. How much interest will Tardez Ltd. be charged by HMRC in respect of the late payment? a) 5,933 b) 3,043 c) 2,739 d) 1,828 Page 2 of 12 Adv. Taxation (NI) A2017
4. Which of the following companies will be treated as resident in the UK for Corporation Tax purposes? 1. A Ltd a company incorporated in the UK with it s central management and control exercised in the UK; 2. B Ltd a company incorporated overseas with it s central management and control exercised in the UK; 3. C Ltd a company incorporated in the UK with it s central management and control exercised overseas; 4. D Ltd a company incorporated overseas with it s central management and control exercised overseas. a) 1 only b) 1, 2 and 3 only c) All of the above d) 2 and 3 only 5. Orange Ltd provides one of their sales directors with a car which is used for both business and private use. For Y/E 31.3.2017 the total cost of petrol for the car was 600 (incl. of VAT) of which 30% was for private use by the director. The car is a Lexus CT with CO2 emissions of 205g/km. The Output Vat declared and Input VAT reclaimed in the quarter will be: a) Output VAT of 69 and Input VAT of 100 b) Output VAT of 69 and Input VAT of 70 c) Output VAT of NIL and Input VAT of 70 d) Output VAT of NIL and Input VAT of 100 6. For the tax year 2015/16 Will filed a paper copy SA100 on 12 August 2016. What is the deadline for Will to make an amendment to his 2015/16 return and by which date will HMRC have to notify Will if they intend to carry out a compliance check into his return? Amendment Compliance a) 12 August 2017 31 January 2018 b) 12 August 2017 12 August 2017 c) 31 January 2018 31 January 2018 d) 31 January 2018 12 August 2017 7. Frances tax liabilities for the tax year 2015/16 and 2016/17 have been as follows:- 2015/16 2016/17 Income Tax liability 400 2,400 Class 4 NIC 280 1,260 CGT liability 240 NIL What payment on account will Frances have to make on 31 July 2017 in respect of the tax year 2016/17? a) NIL b) 340 c) 1830 d) 460 Page 3 of 12 Adv. Taxation (NI) A2017
8. Frank is self-employed and his tax adjusted trading profit for the y/e 5 April 2017 was 82,700. During the tax year 2016/17 Frank contributed 5,400 (Gross) into a personal pension scheme. What amount of Class 4 NIC will Frank pay for the tax year 2016/17? a) 3,939 b) 3,831 c) 6,718 d) 6,232 9. You are a trainee accountant with your firm and a client has refused to disclose a chargeable gain to HMRC. From an ethical viewpoint which of the following actions could be expected from your firm? 1. Report under Money Laundering regulations 2. Advise the client to make disclosure 3. Inform HMRC of the non-disclosure 4. Warn the client that you are obliged to report the non-disclosure a) 1 & 2 only b) 2 & 4 only c) 1 & 3 only d) All of the above 10. On 11 November 2016 Alice sold an antique table for 8,700. The antique table had been purchased on 13 May 2012 for 3,800. What is Alice s chargeable gain in respect of the disposal? a) 4,900 b) 1,620 c) 4,500 d) NIL Page 4 of 12 Adv. Taxation (NI) A2017
QUESTION 2 (Compulsory) Over the years Joe has been buying shares in Tonrun Plc a quoted company. In March 2017 Joe decided to sell some of these. Acquisitions and sales of shares have been as follows:- Required 9 June 1994 Bought 4,000 shares for 8,000 30 July 2001 Bought 1,800 shares for 9,750 26 May 2009 Bought 1,000 shares for 8,500 15 March 2017 Sold 3,500 shares for 36,000 31 March 2017 Bought 400 shares for 3,900 A. Calculate the total gain realised on the sale of the 3,500 shares sold in March 2017. (8 Marks) In July 2016 Nicky sold her incorporated trading business which she had set up in 1996. The following gains arose on the disposal: Factory 275,000 Goodwill 380,000 Warehouse 160,000 Painting (in the business premises) * 20,000 *Note The painting was bought by Nicky at an auction as she felt it would increase the ambience of the reception area. B. Assuming Nicky is a basic rate tax payer; calculate the capital gains tax payable on the above disposals taking accounts of all reliefs available. (5 Marks) Katie purchased a house on 1 January 2001 for 80,000. She lived in the house for 3 years until she moved to Australia where she stayed for 7 years. During this time she rented the property to a friend from university. She returned on 1 January 2011 and occupied the house until the sale on 31 December 2016 for 350,000. C. Calculate the chargeable gain realised on the sale of the property assuming all reliefs available are claimed. (7 Marks) Page 5 of 12 Adv. Taxation (NI) A2017
QUESTION 3 (Compulsory) (A) Mel has been registered for VAT since 1 April 2005. The following information is available for the year ended 31 March 2017. All figures are inclusive of VAT where applicable. 1. Sales invoices totalling 126,000 were issued of which 115,200 were in respect of standard rated sales and 10,800 were in respect of Zero rated sales. 2. Purchases invoices totalling 49,200 were received of which 43,200 were in respect of standard rated purchases and 6,000 were in respect of zero rated sales. 3. On 31 March 2017 Mel wrote off two impairment losses which were in respect of standard rated sales of 780 (due for payment 18 August 2015) and a second of 660 (due for payment on 30 September 2016) 4. During the y/e 31 March 2017 Mel spent 2,600 on mobile telephone calls of which 40% related to private calls 5. During the year Mel spent 1,560 on entertaining customers of which 240 was in respect of overseas customers. i) Calculate the VAT payable for the y/e 31 March 2017 on a normal invoice basis. (6 Marks) ii) Mel does not use either the cash accounting or the flat rate scheme. If he did use the flat rate scheme the relevant percentage for his business would be 12%. If Mel were to register for this scheme calculate the VAT payable for y/e 31 March 2017. (2 Marks) iii) Outline to Mel what the turnover thresholds Mel must satisfy to be able to join the flat rate scheme. (1 Mark) iv) When will Mel be required to leave the Flat rate scheme? (1 Mark) (B) Fox Ltd has been registered for VAT on the normal basis for some years now. The following information is available in respect of Fox Ltd s VAT for the Q/E 31.3.2017. All figures are exclusive of VAT. 1. Standard rated sales 9,400 * (see note below) Exempt Sales 35,200 * Note: In addition to this on 1 March 2017 Fox Ltd issued a VAT invoice for 8,000 (exc. VAT) to a VAT registered customer in respect of a contract which will be completed on 15 April 2017. The customer paid for the contract in two equal instalments on 31 March 2017 and 30 April 2017. 2. Fox Ltd has incurred input Vat as follows: Attributable to taxable supplies 2,564 Attributable to exempt supplies 641 Un-attributable VAT 1,925 5,130 Page 6 of 12 Adv. Taxation (NI) A2017
3. The managing director of Fox Ltd is provided with free fuel for private mileage driven in her company car. During q/e 31 March 2017 the total cost of fuel was 720 (inc. VAT). The vehicle has a CO 2 emissions rating of 205 g/km. This 720 has been included in the total Input VAT attributable to Taxable Supplies of 2,564. Fox Ltd s annual turnover is approximately 175,000 and have had a Surcharge liability Notice issued to them in respect of late filing on 31 December 2016. i) Calculate the VAT payable in respect of Q/E 31 March 2017. (6 Marks) ii) State what surcharge penalty could Fox Ltd be charged if the company is one month late in paying it s VAT liability for the quarter. (2 Marks) iii) State the minimum requirement which Fox Ltd need to meet in order to revert to a clean default surcharge record. (2 Marks) Page 7 of 12 Adv. Taxation (NI) A2017
SECTION B Answer ANY TWO of the FOUR questions in Section B QUESTION 4 Lucas Ltd s summarized Statement of Profit or Loss for the y/e 31 March 2017 is as follows: Note Gross profit 254,200 Operating expenses Depreciation 54,480 Gifts & donations 1 4,600 Impairment loss 2 3,200 Leasing costs 3 8,800 Other expenses 4 410,320 (481,400) Finance costs Interest payable 5 (12,800) Loss before taxation 240,000 *Notes 1. Gifts & donations are as follows: Gifts to employees (food hamper @ 50 1,440 each) Gifts to customers (company calendars 960 costing 8 each) Political donations 840 Qualifying charitable donations 1,360 4,600 2. Impairment loss On 31 March 2017 Lucas Ltd wrote off an impairment loss of 3,200 relating to a trade debt in respect of an invoice due to be paid on 10 November 2016. 3. Leasing costs The leasing costs of 8,800 are in respect of a motor car lease which commenced 1 April 2016. The leased motor car has CO 2 emissions of 146g/km. 4. Other expenses The figure of 410,320 includes: - Director s remuneration 126,800 Director s performance related bonus 26,420 Fine for breach of Health & Safety 450 regulations Legal fees of 4,860 in connection with 4,860 defence of Lucas domain name Entertaining UK customers 6,420 Entertaining overseas customers 4,950 Accountancy fees for Inheritance Tax 6,480 planning Page 8 of 12 Adv. Taxation (NI) A2017
5. Interest payable The interest payable is in respect of a 5% loan which was repaid on 31 July 2016. Interest of 19,200 was paid on 31 July 2016 and an accrual of 6,400 had been provided for at 1 April 2016. The loan was issued in order to finance the company s trading activities. 6. Information on the company s non current assets is as follows: - On 1 April 2016 the tax written down value on the mail pool was 78,600. In the year the following vehicles were purchased: Date Vehicle details Cost 8.6.2016 Car CO 2 emissions 29,400 124g/km 3.8.2016 Delivery van 162 g/km 58,600 19.10.2016 Car CO 2 66 g/km 24,800 7. Other information: Lucas Ltd. had commenced trading on 1 September 2014. The company s results for it s two previous periods of trading are as follows: Y/E 31.08.2015 P/E 31.03.2016 Trade profit 113,200 95,800 Bank Interest receivable 2,600 - Qualifying charitable donations (1,080) (660) Lucas Ltd. is expected to return to profitability in the Y/E 31 March 2018 having secured a lucrative contract for the next 5 years. 1. Calculate the capital allowances available to Lucas Ltd for the y/e 31 March 2017. (4 Marks) 2. Calculate the tax adjusted loss for the y/e 31 March 2017 to include the capital allowances calculated above. (8 Marks) 3. Assuming that Lucas Ltd claims relief for its trading loss as early as possible calculate the company s profits for the y/e 31.8.2015, p/e 31.3.2016 and 31.3.2017. (6 Marks) 4. Identify the amount if any of unrelieved trading loss which Lucas Ltd will have on 31.3.2018 and state how this can be relieved. (2 Marks) Page 9 of 12 Adv. Taxation (NI) A2017
QUESTION 5 Patrick Mansfield has three residential properties which he lets out in the year details of which are as follows: Four bedroom house: Two bedroom house: One bedroom flat: 1. This is a furnished property which is rented out at 870 pm and has been let throughout 2016/2017 2. A commission of 7% is paid by Patrick to the letting agent in respect of the property. 3. Patrick sold the dining room table and chairs in this property for 240 in October 2016. He chose to purchase higher quality furniture costing 2,700 rather than furniture of a similar quality which would have cost 2,200. 1. This was rented out from 6 July 2016 for 610 pm. Patrick purchased furniture for 5,000 to go in the house. 2. Patrick paid interest of 280 on a loan to purchase the property. 1. This is a flat let unfurnished and is let out at 465pm. The property was occupied from the start of the tax year until 5 November 2016 when the tenant moved out without paying the last month s rent. It is unlikely that Patrick will be able to recover this debt. New tenants moved in on 6 January 2017 when Patrick increased the rent to 500pm. 2. A maintenance man is paid to maintain and clean this property at a cost of 60pm and this has been paid throughout the whole of 2016/17. Additionally, Patrick also has had dealings in a commercial property that he has used for some years for a small business venture. On the 4 September 2011 Gemma granted a lease to Patrick for 25 years on the payment of 20,800. On 4 September 2016 Patrick has sublet the property to Stephen for 5 years and Patrick has received 5,000 for this. a) Calculate Patrick s total rental income in respect of the three residential properties he has let for 2016/17 (8 Marks) b) State the length of time for which Patrick is statutorily obliged to keep records in respect of rental income. (2 Marks) c) Calculate the property business income assessable on Patrick in 2016/17 in respect of the assignment of the lease to Stephen. (4 Marks) d) Patrick has recently been considering his options with some of his properties and understands that there are certain conditions to be satisfied in order that a property can be considered to be treated as a Furnished Holiday Let. Outline to Patrick (i) The benefits of a property being considered as a Furnished Holiday Let. (3 Marks) Page 10 of 12 Adv. Taxation (NI) A2017
(ii) Outline the conditions that must be satisfied in order that the property can qualify as a Furnished Holiday Let. (3 Marks) QUESTION 6 Corporation Tax is charged and collected through the self assessment system. You are currently employed in the training division of the tax department and have been asked to draft an information sheet that covers the key aspects of this self assessment system. The key points that this should cover include: 1. Notification of chargeability to tax (2 Marks) 2. Deadlines for filing a Corporation Tax return (2 Marks) 3. Retention of corporation tax records (2 Marks) 4. Amendments of returns (2 Marks) 5. HMRCs right to enquire (2 Marks) 6. Corporation Tax payment dates (4 Marks) 7. Interest on late filing and or payment (2 Marks) 8. Penalties for Incorrect returns (4 Marks) QUESTION 7 (A) It is not always evident whether an individual is employed or self-employed. Employment is considered a contract of service and taxed as Employment Income whereas selfemployment is considered a contract for service and taxed as Income from Trade. Outline the factors which HMRC may consider in order to determine which type of contract exists. (6 Marks) (B) Sharif is employed as a Sales manager by Bamboo Ltd and the following information is available in respect of the tax year 2016/17: 1. Sharif was paid a Gross monthly salary of 6,200 (PAYE deducted 26,040) 2. In addition to his salary Sharif has been paid the following bonuses: Date Amount Date of entitlement In respect of 25.4.2016 4,600 31.3.2016 6 m/e 31.12.15 20.8.2016 8,100 3.7.2016 6 m/e 30.6.16 3.5.2017 2,900 15.4.2017 6 m/e 31.12.16 3. During the period 6.4.2016 to 31.8.2016 Sharif used his private car for both business and private use. He was reimbursed by Bamboo Ltd at a generous rate of 55p per mile for the following mileage: Page 11 of 12 Adv. Taxation (NI) A2017
Miles Daily travel from home to office 2,420 Travel between home and company clients 8,580 Note : This is considered to be the additional miles covered between home and company clients and home and normal company premises Travel between home and temporary 2,860 workplace for 12 weeks 13,860 4. Between 1 September 2016 and 5 April 2017 Sharif was provided with a car with a list price of 13,370 and official CO 2 emissions rating of 86g/km. No fuel was provided for the vehicle. 5. During January 2017 Sharif spent 10 nights overseas on company business. Bamboo Ltd paid him a daily allowance for this of 10 per day in addition to payment of the hotel bill for this time of 840. 6. Throughout the tax year Sharif was allowed the use of two mobile phones which had both been provided by the company at a cost of 400 each. There is a private use element in only one of the phones. 7. Throughout the tax year Bamboo Ltd provided Sharif with living accommodation. The company had purchased the property on 1 June 2013 for 142,000 and it was provided to Sharif since 1 February 2015. Improvements costing 14,400 were made to the property during October 2013 and further improvements costing 9,800 were made during August 2015. The annual value of the property is 4,828. 8. Other income in the year includes Bank interest received of 5,260 and Dividend income of 7,200. 9. During the tax year Sharif made a net Gift Aid donation of 600 to a national charity and personal pension contribution net of 310 pm. Calculate Sharif s Income Tax liability for 2016/17. (14 Marks) Page 12 of 12 Adv. Taxation (NI) A2017