ACCA f6 EW exam kit 2013 taxation

Having covered the core areas of the basic taxes, candidates should be able to compute tax liabilities, explain the basis of their calculations, apply tax planning techniques for individ

Taxation

FA12

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Answer page

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Exam

20 Xio, Yana and Zoe  24  102  ACCA 2.3 Dec 2004 (amended) 

Capital gains tax

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Candidates are  introduced  to  the  rationale  behind  –  and  the  functions  of  –  the  tax system.  The  syllabus  then  considers  the  separate  taxes  that  an  accountant  would need  to  have  a  detailed  knowledge  of,  such  as  income  tax  from  self‐employment, employment and investments, the corporation tax liability of individual companies and groups of companies, the inheritance tax liabilities of individuals, the national insurance contribution liabilities of both employed and self employed persons, the value added tax liability of businesses, the chargeable gains arising on disposals of investments  by  both  individuals  and  companies,  and  the  inheritance  tax  liabilities arising on chargeable lifetime transfers and on death. 

Having  covered  the  core  areas  of  the  basic  taxes,  candidates  should  be  able  to compute  tax  liabilities,  explain  the  basis  of  their  calculations,  apply  tax  planning techniques  for  individuals  and  companies  and  identify  the  compliance  issues  for each major tax through a variety of business and personal scenarios and situations. 

Syllabus

1 The overall function and purpose of taxation in a modern economy

2 Different types of taxes

3 Principal sources of revenue law and practice

4 Tax avoidance and tax evasion

1 The scope of income tax

2 Income from employment

3 Income from self-employment

4 Property and investment income

5 The comprehensive computation of taxable income and income tax liability

6 The use of exemptions and reliefs in deferring and minimising income tax liabilities

1 The scope of corporation tax

2 Taxable total profits

3 The comprehensive computation of corporation tax liability

4 The effect of a group corporate structure for corporation tax purposes

5 The use of exemptions and reliefs in deferring and minimising corporation tax liabilities

D Chargeable gains

1 The scope of the taxation of capital gains

2 The basic principles of computing gains and losses

3 Gains and losses on the disposal of movable and immovable property

4 Gains and losses on the disposal of shares and securities

5 The computation of the capital gains tax payable by individuals

6 The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets

1 The scope of inheritance tax

2 The basic principles of computing transfers of value

3 The liabilities arising on chargeable lifetime transfers and on the death

of an individual

4 The use of exemptions in deferring and minimising inheritance tax liabilities

5 Payment of inheritance tax

1 The scope of national insurance

2 Class 1 and Class 1A contributions for employed persons

3 Class 2 and Class 4 contributions for self-employed persons

1 The scope of value added tax (VAT)

2 The VAT registration requirements

3 The computation of VAT liabilities

4 The effect of special schemes

1 The systems for self-assessment and the making of returns

2 The time limits for the submission of information, claims and payment

of tax, including payments on account

3 The procedures relating to enquiries, appeals and disputes

4 Penalties for non-compliance

Approach to examining the syllabus

The syllabus is assessed by a three-hour paper-based examination

The paper will be predominantly computational and will have five questions, all of which will be compulsory

„ Question one will focus on income tax and question two will focus on corporation tax The two questions will be for a total of 55 marks, with one of the questions being for 30 marks and the other being for 25 of the marks

„ Question three will focus on chargeable gains (either personal or corporate) and will be for 15 marks

„ Questions four and five will be on any area of the syllabus, can cover more than one topic, and will be for 15 marks

There will always be a minimum of 10 marks on value added tax These marks will normally be included within question one or question two, although there might be

a separate question on value added tax

There will always be between 5 and 15 marks on inheritance tax Inheritance tax can

be included within questions three, four or five

National insurance contributions will not be examined as a separate question, but may be examined in any question involving income tax or corporation tax

Groups and overseas aspects may be examined in question two, question four or question five

A small element of chargeable gains may be included in questions other than question three

Any of the five questions might include the consideration of issues relating to the minimisation or deferral of tax liabilities

Study guide

This study guide provides more detailed guidance on the syllabus. You should use this as the basis of your studies. 

(a) Describe the purpose (economic, social etc) of taxation in a modern economy

(a) Identify the different types of capital and revenue tax

(b) Explain the difference between direct and indirect taxation

(a) Describe the overall structure of the UK tax system

(b) State the different sources of revenue law

4 Tax avoidance and tax evasion

(a) Explain the difference between tax avoidance and tax evasion (b) Explain the need for an ethical and professional approach

Excluded topics

Anti-avoidance legislation

(a) Explain how the residence of an individual is determined

Excluded topics

The treatment of a person who comes to the UK to work or a person who leaves the UK to take up employment overseas

Foreign income, non-residents and double taxation relief

Income from trusts and settlements

Child benefit income tax charge

(a) Recognise the factors that determine whether an engagement is treated as employment or self-employment

(b) Recognise the basis of assessment for employment income

(c) Compute the income assessable

(d) Recognise the allowable deductions, including travelling expenses (e) Discuss the use of the statutory approved mileage allowances (f) Explain the PAYE system

(g) Identify P11D employees

(h) Compute the amount of benefits assessable

(i) Explain the purpose of a dispensation from HM Revenue & Customs

(j) Explain how charitable giving can be made through a payroll deduction scheme

Excluded topics

The calculation of a car benefit where emission figures are not available

The exemption for zero emission company motor cars

Share and share option incentive schemes for employees

Payments on the termination of employment, and other lump sums received by employees

(a) Recognise the basis of assessment for self-employment income (b) Describe and apply the badges of trade

(c) Recognise the expenditure that is allowable in calculating the adjusted trading profit

tax-(d) Recognise the relief that can be obtained for pre-trading expenditure

(e) Compute the assessable profits on commencement and on cessation

(f) Change of accounting date (i) Recognise the factors that will influence the choice of accounting date

(ii) State the conditions that must be met for a change of accounting date to be valid

(iii) Compute the assessable profits on a change of accounting date

(g) Capital allowances (i) Define plant and machinery for capital allowances purposes (ii) Compute writing down allowances, first year allowances and the annual investment allowance

(iii) Compute capital allowances for motor cars

(iv) Compute balancing allowances and balancing charges

(v) Recognise the treatment of short life assets

(vi) Explain the treatment of assets included in the special rate pool

(h) Relief for trading losses (i) Understand how trading losses can be carried forward (ii) Explain how trading losses can be carried forward following the incorporation of a business

(iii) Understand how trading losses can be claimed against total income and chargeable gains

(iv) Explain and compute the relief for trading losses in the early years of a trade

(vi) Explain and compute terminal loss relief

(i) Partnerships and limited liability partnerships (i) Explain how a partnership is assessed to tax

(ii) Compute the assessable profits for each partner following a change in the profit sharing ratio

(iii) Compute the assessable profits for each partner following a change in the membership of the partnership

(iv) Describe the alternative loss relief claims that are available to partners

(v) Explain the loss relief restriction that applies to the partners

of a limited liability partnership

Excluded topics

The 100% first-year allowance for expenditure on renovating business premises

in disadvantaged areas, flats above shops and water technologies

Capital allowances for industrial buildings, agricultural buildings, patents, scientific research and know how

Capital allowances for motor cars already owned at 6 April 2009 (1 April 2009 for companies)

Apportionment in order to determine the rate of writing down allowance or the amount of annual investment allowance where a period of account spans 6 April 2012 (1 April 2012 for companies)

Enterprise zones

Investment income of a partnership

The allocation of notional profits and losses for a partnership

Farmers averaging of profits

The averaging of profits for authors and creative artists

Loss relief for shares in unquoted trading companies

(a) Compute property business profits

(b) Explain the treatment of furnished holiday lettings

(c) Describe rent-a-room relief

(d) Compute the amount assessable when a premium is received for the grant of a short lease

(e) Understand how relief for a property business loss is given

(f) Compute the tax payable on savings income

(g) Compute the tax payable on dividend income

(h) Explain the treatment of individual savings accounts (ISAs) and other tax exempt investments

Excluded topics

The deduction for expenditure by landlords on energy-saving items

Premiums for granting subleases

(c) Compute the amount of income tax payable

(d) Explain the treatment of interest paid for a qualifying purpose (e) Explain the treatment of gift aid donations

(f) Explain the treatment of property owned jointly by a married couple, or by a couple in a civil partnership

Excluded topics

The blind person’s allowance and the married couple’s allowance

Tax credits

Maintenance payments

The income of minor children

income tax liabilities

(a) Explain and compute the relief given for contributions to personal pension schemes, using the rules applicable from 6 April 2011 (b) Describe the relief given for contributions to occupational pension schemes, using the rules applicable from 6 April 2011

(c) Explain how a married couple or couple in a civil partnership can minimise their tax liabilities

Tax reduction scheme for gifts of pre-eminent objects

(a) Define the terms ‘period of account’, ‘accounting period’, and

The purchase by a company of its own shares

Personal service companies

(b) Explain how relief can be obtained for pre-trading expenditure (c) Compute capital allowances (as for income tax)

(d) Compute property business profits

(e) Explain the treatment of interest paid and received under the loan relationship rules

(f) Explain the treatment of qualifying charitable donations

(g) Understand how trading losses can be carried forward

(h) Understand how trading losses can be claimed against income of the current or previous accounting periods

(i) Recognise the factors that will influence the choice of loss relief claim

(j) Explain how relief for a property business loss is given

(k) Compute taxable total profits

Excluded topics

Research and development expenditure

Non-trading deficits on loan relationships

Relief for intangible assets

(a) Compute the corporation tax liability and apply marginal relief (b) Explain the implications of receiving franked investment income

(e) Calculate double taxation relief

(f) Explain the election for the exemption of profits from overseas branches

(g) Explain the basic principles of the transfer pricing rules

The anti-avoidance provisions where arrangements exist for a company to leave

a group

The tax charge that applies where a company leaves a group within six years of receiving an asset by way of a no gain/no loss transfer

Controlled foreign companies

Foreign companies trading in the UK

Expense relief in respect of overseas tax

The set off of qualifying charitable donations and losses for the purpose of calculating double taxation relief

Transfer pricing transactions not involving an overseas company

corporation tax liabilities

(The  use  of  such  exemptions  and  reliefs  is  implicit  within  all  of  the above  sections  1  to  4  of  part  C  of  the  syllabus,  concerning  corporation tax) 

(a) Describe the scope of capital gains tax

(b) Explain how the residence and ordinary residence of an individual

is determined

(c) List those assets which are exempt

Excluded topics

Assets situated overseas and double taxation relief

Partnership capital gains

(a) Compute capital gains for both individuals and companies

(b) Calculate the indexation allowance available to companies

(c) Explain the treatment of capital losses for both individuals and companies

(d) Explain the treatment of transfers between a husband and wife or between a couple in a civil partnership

(e) Compute the amount of allowable expenditure for a part disposal (f) Explain the treatment where an asset is damaged, lost or destroyed, and the implications of receiving insurance proceeds and reinvesting such proceeds

Excluded topics

Losses in the year of death

Relief for losses incurred on loans made to traders

Negligible value claims

property

(a) Identify when chattels and wasting assets are exempt

(b) Compute the chargeable gain when a chattel is disposed of

(c) Calculate the chargeable gain when a wasting asset is disposed of (d) Compute the exemption when a principal private residence is disposed of

(e) Calculate the chargeable gain when a principal private residence has been used for business purposes

(f) Identify the amount of letting relief available when a principal private residence has been let out

Excluded topics

The disposal of leases and the creation of sub-leases

(a) Calculate the value of quoted shares where they are disposed of by way of a gift

(b) Explain and apply the identification rules as they apply to individuals and to companies, including the same day, nine day, and thirty day matching rules

(c) Explain the pooling provisions

(d) Explain the treatment of bonus issues, rights issues, takeovers and reorganisations

(e) Explain the exemption available for gilt-edged securities and qualifying corporate bonds

(a) Compute the amount of capital gains tax payable

6 The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets

(a) Explain and apply entrepreneurs’ relief as it applies to individuals (b) Explain and apply rollover relief as it applies to individuals and companies

(c) Explain and apply holdover relief for the gift of business assets (d) Explain and apply the incorporation relief that is available upon the transfer of a business to a company

Excluded topics

Reinvestment relief

Entrepreneurs’ relief for associated disposals

(a) Describe the scope of inheritance tax (b) Identify and explain the persons chargeable

Excluded topics

Pre 18 March 1986 lifetime transfers

Transfers of value by close companies

Domicile, deemed domicile, and non-UK domiciled individuals

Trusts

(a) State, explain and apply the meaning of transfer of value, chargeable transfer and potentially exempt transfer

(b) Demonstrate the diminution in value principle

(c) Demonstrate the seven year accumulation principle taking into account changes in the level of the nil rate band

Excluded topics

Excluded property

Related property

The tax implications of the location of assets

Gifts with reservation of benefit

(c) Compute the tax liability on a death estate

(d) Understand and apply the transfer of any unused nil rate band between spouses

Excluded topics

Specific rules for the valuation of assets (values will be provided)

Business property relief

Agricultural relief

Relief for the fall in value of lifetime gifts

Quick succession relief

Double tax relief

Variation of wills and disclaimers of legacies

Grossing up on death

Post mortem reliefs

Double charges legislation

The reduced rate of inheritance tax payable on death when a proportion of a person’s estate is bequeathed to charity

liabilities

(a) Understand and apply the following exemptions:

(i) small gifts exemption (ii) annual exemption (iii) normal expenditure out of income (iv) gifts in consideration of marriage (v) gifts between spouses

Excluded topics

Gifts to charities

Gifts to political parties

Gifts for national purposes

(a) Identify who is responsible for the payment of inheritance tax (b) Advise on the due date for payment of inheritance tax

Excluded topics

Administration of inheritance tax other than listed above

The instalment option for the payment of tax

Interest and penalties

F NATIONAL INSURANCE CONTRIBUTIONS

(a) Describe the scope of national insurance

(a) Compute Class 1 NIC

(b) Compute Class 1A NIC

Excluded topics

The calculation of directors’ national insurance on a month by month basis Contracted out contributions

(a) Compute Class 2 NIC

(b) Compute Class 4 NIC

Excluded topics

The offset of trading losses against non-trading income

(a) Describe the scope of VAT

(b) List the principal zero-rated and exempt supplies

(a) Recognise the circumstances in which a person must register for VAT

(b) Explain the advantages of voluntary VAT registration

(c) Explain the circumstances in which pre-registration input VAT can

be recovered

(d) Explain how and when a person can deregister for VAT

(e) Explain the conditions that must be met for two or more companies to be treated as a group for VAT purposes, and the consequences of being so treated

(a) Explain how VAT is accounted for and administered

(b) Recognise the tax point when goods or services are supplied (c) List the information that must be given on a VAT invoice

(d) Explain and apply the principles regarding the valuation of supplies

(f) Compute the relief that is available for impairment losses on trade debts

(g) Explain the circumstances in which the default surcharge, a penalty for an incorrect VAT return, and default interest will be applied

(h) Explain the treatment of imports, exports and trade within the European Union

Penalties apart from those listed in the study guide

(a) Describe the cash accounting scheme, and recognise when it will

be advantageous to use the scheme

(b) Describe the annual accounting scheme, and recognise when it will be advantageous to use the scheme

(c) Describe the flat rate scheme, and recognise when it will be advantageous to use the scheme

Excluded topics

The second-hand goods scheme

The capital goods scheme

The special schemes for retailers

(a) Explain and apply the features of the self-assessment system as it applies to individuals

(b) Explain and apply the features of the self-assessment system as it applies to companies, including the use of iXBRL

payment of tax, including payments on account

(a) Recognise the time limits that apply to the filing of returns and the making of claims

(b) Recognise the due dates for the payment of tax under the assessment system

payments/repayments for individuals

(d) Explain how large companies are required to account for corporation tax on a quarterly basis

(e) List the information and records that taxpayers need to retain for tax purposes

Excluded topics

The payment of CGT by annual instalments

disputes

(a) Explain the circumstances in which HM Revenue & Customs can make a compliance check into a self-assessment tax return

(b) Explain the procedures for dealing with appeals and disputes

(a) Calculate late payment interest

(b) State the penalties that can be charged

Five steps to exam success

1 Know your subject

It sounds obvious, but you really need to know all topics in the syllabus – ACCA can test you on any area of the syllabus so even those topics you think might ‘never come up’ could be on your next exam. Whatever the format, questions require that you have learnt  definitions,  know  key  words  and  their  meanings  and  understand  concepts, theories and rules. 

2 Know your exam structure

Do you know how many questions you need to attempt? Do you know how long your exam is? What type of questions come up? Knowing this is essential! 

„ Question three will be for 15 marks, and will focus on chargeable gains (either personal or corporate)

„ Questions four and five will be on any area of the syllabus, can cover more than one topic, and will be for 15 marks

There  will  always  be  a  minimum  of  10  marks  on  value  added  tax.  These  marks  will normally be included within question one or question two, although there might be a separate question on value added tax. 

Any  of  the  five  questions  might  include  the  consideration  of  issues  relating  to  the minimisation or deferral of tax liabilities. 

3 Practice makes perfect

One  of  the  best  ways  to  prepare  for  your  actual  exam  is  to  try  lots  of  past  questions under  timed  conditions.  As  actual  past  questions  are  based  on  out  of  date  rates  and regulations, all of the questions in this kit have been updated to cover current rates and allowances.  They  have  also  been  amended  to  include  legislation  introduced  since  the question  was  originally  set.  New  legislation  frequently  appears  in  examination questions  as  it  is  not  only  topical,  but  also  helps  to  provide  the  examiner  with inspiration for questions.  

Attempt ALL of the questions in this exam kit and compare your answers with the suggested answers to see what you need to improve on and the areas you need to go back and revise! Go back and revise and then reattempt questions if you get any wrong

4 Time yourself

If you are sitting an exam worth 100 marks in three hours, you should aim to spend 1.8 minutes on each mark. Make sure that you have double‐checked your strategy of how you  are  going  to  allocate  your  time  before  you  go  into  the  exam  and  that  you  are comfortable answering five questions in three hours. 

Since  you  don’t  need  to  attempt  the  questions  in  order,  a  good  strategy  could  be  to attempt  the  ‘easy’  questions  (such  as  those  you  either  know  or  you  don’t)  at  the beginning and save those that involve calculations or a bit more thought to the end.    

5 Reading and planning time in the exam

You have been given an extra 15 minutes ‘reading and planning’ time in the exam. Use 

it wisely! You are allowed to read the questions, begin to plan your answers and use your  calculator  to  make  some  preliminary  numerical  calculations.  You’re  allowed  to 

1 Tax rates and allowances

2 Retail price indices

1 Tax rates and allowances

1.1 Tax rates and allowances given in the examination paper

Income tax

Normal rates

Dividend rates

Car benefit percentage

The relevant base level of CO2 emissions is 100 grams per kilometre

The percentage rates applying to petrol cars with CO2 emissions up to this level are:

75 grams per kilometre or less 5%

76 and 99 grams per kilometre 10%

Car fuel benefit

The base figure for calculating the car fuel benefit is £20,200

Individual savings accounts

The overall investment limit is £11,280, of which £5,640 can be invested in a cash ISA

Personal scheme limit

Motor cars

New cars with CO2 emissions up to 110 grams per kilometre 100

CO2 emissions between 111 and 160 grams per kilometre 18

CO2 emissions over 160 grams per kilometre 8

Annual investment allowance

Standard fraction x (U – A) x N/A

Value added tax

Inheritance tax: taper relief

reduction %

Capital gains tax

Entrepreneurs’ relief ‐ Lifetime limit £10,000,000

Rates of interest

Official rate of interest: 4%

Rate of late payment interest: 3% (assumed)

Rate of repayment interest: 0.5% (assumed)

2 Retail price indices

2.1 RPIs used for examples and questions in this text

1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

January – 82.61 86.84 91.20 96.25 100.0 103.3 111.0 119.5 130.2 135.6 February – 82.97 87.20 91.94 96.60 100.4 103.7 111.8 120.2 130.9 136.3 March 79.44 83.12 87.48 92.80 96.73 100.6 104.1 112.3 121.4 131.4 136.7 April 81.04 84.28 88.64 94.78 97.67 101.8 105.8 114.3 125.1 133.1 138.8 May 81.62 84.64 88.97 95.21 97.85 101.9 106.2 115.0 126.2 133.5 139.3 June 81.85 84.84 89.20 95.41 97.79 101.9 106.6 115.4 126.7 134.1 139.3 July 81.88 85.30 89.10 95.23 97.52 101.8 106.7 115.5 126.8 133.8 138.8 August 81.90 85.68 89.94 95.49 97.82 102.1 107.9 115.8 128.1 134.1 138.9 September 81.85 86.06 90.11 95.44 98.30 102.4 108.4 116.6 129.3 134.6 139.4 October 82.26 86.36 90.67 95.59 98.45 102.9 109.5 117.5 130.3 135.1 139.9 November 82.66 86.67 90.95 95.92 99.29 103.4 110.0 118.5 130.0 135.6 139.7 December 82.51 86.89 90.87 96.05 99.62 103.3 110.3 118.8 129.9 135.7 139.2

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

January 137.9 141.3 146.0 150.2 154.4 159.5 163.4 166.6 171.1 173.3 178.4 February 138.8 142.1 146.9 150.9 155.0 160.3 163.7 167.5 172.0 173.8 179.3 March 139.3 142.5 147.5 151.5 155.4 160.8 164.1 168.4 172.2 174.5 179.9 April 140.6 144.2 149.0 152.6 156.3 162.6 165.2 170.1 173.1 175.7 181.2 May 141.1 144.7 149.6 152.9 156.9 163.5 165.6 170.7 174.2 176.2 181.5 June 141.0 144.7 149.8 153.0 157.5 163.4 165.6 171.1 174.4 176.2 181.3 July 140.7 144.0 149.1 152.4 157.5 163.0 165.1 170.5 173.3 175.9 181.3 August 141.3 144.7 149.9 153.1 158.5 163.7 165.5 170.5 174.0 176.4 181.6 September 141.9 145.0 150.6 153.8 159.3 164.4 166.2 171.7 174.6 177.6 182.5 October 141.8 145.2 149.8 153.8 159.5 164.5 166.5 171.6 174.3 177.9 182.6 November 141.6 145.3 149.8 153.9 159.6 164.4 166.7 172.1 173.6 178.2 182.7 December 141.9 146.0 150.7 154.4 160.0 164.4 167.3 172.2 173.4 178.5 183.5

Property two

This is a freehold house that is let out furnished The property was let throughout the tax year 2012–13 at a monthly rent of £575, payable in advance During the tax year 2012–13 Edmond paid council tax of £1,200 and insurance of £340 in respect of this property He claims the wear and tear allowance for this property

Property three

This is a freehold house that is let out unfurnished The property was purchased on 6 April 2012, and it was empty until 30 June 2012 It was then let from 1 July 2012 to 31 January 2013 at a monthly rent of £710, payable in advance On 31 January 2013 the tenant left owing three months rent which Edmond was unable to recover The property was not re-let before 5 April 2013 During the tax year 2012–13 Edmond paid insurance of £290 for this property and spent £670 on advertising for tenants He also paid loan interest of £6,700 in respect of a loan that was taken out to purchase this property

Property four

This is a leasehold office building that is let out unfurnished Edmond pays an annual

rent of £6,800 for this property, but did not pay a premium when he acquired it On 6

April 2012 the property was sub-let to a tenant, with Edmond receiving a premium of

£15,000 for the grant of a five-year lease He also received the annual rent of £4,600

which was payable in advance During the tax year 2012–13 Edmond paid insurance

of £360 in respect of this property

Furnished room

During the tax year 2012–13 Edmond rented out one furnished room of his main

residence During the year he received rent of £5,040, and incurred allowable

expenditure of £1,140 in respect of the room Edmond always computes the taxable

income for the furnished room on the most favourable basis

Required:

(a) State the income tax advantages of property one being treated as a trade under

(b) Calculate Edmond’s furnished holiday letting loss in respect of property one for

(c) Explain how Edward’s furnished holiday letting loss for the tax year 2012-13 can

(d) Calculate Edmond’s property business profit in respect of the other three

properties and the furnished room for the tax year 2012–13 (9 marks)

(Total: 15 marks)

2 Peter Chic

Peter Chic is employed by Haute-Couture Ltd as a fashion designer The following

information is available for the tax year 2012–13:

Employment

(1) During the tax year 2012-13 Peter was paid a gross annual salary of £95,600 by

Haute-Couture Ltd Income tax of £42,558 was deducted from this figure under

PAYE

(2) In addition to his salary, Peter received two bonus payments from

Haute-Couture Ltd during the tax year 2012–13 The first bonus of £14,300 was paid on

30 April 2012 and was in respect of the year ended 31 December 2011 Peter

became entitled to this first bonus on 10 April 2012 The second bonus of £13,600

was paid on 31 March 2013 and was in respect of the year ended 31 December

2012 Peter became entitled to this second bonus on 25 March 2013

(3) Throughout the tax year 2012–13 Haute-Couture Ltd provided Peter with a

diesel powered motor car which has a list price of £22,500 The motor car cost

Haute-Couture Ltd £21,200, and it has an official CO2 emission rate of 232 grams

per kilometre Peter made a capital contribution of £2,000 towards the cost of the

motor car when it was first provided to him Haute-Couture Ltd also provided

Peter with fuel for private journeys

made to the property during June 2011 The annual value of the property is

£9,100

(5) Throughout the tax year 2012–13 Haute-Couture Ltd provided Peter with two mobile telephones The telephones had each cost £250 when purchased by the company in January 2012

(6) On 5 January 2013 Haute-Couture Ltd paid a health club membership fee of £510 for the benefit of Peter

(7) During February 2013 Peter spent five nights overseas on company business Haute-Couture Ltd paid Peter a daily allowance of £10 to cover the cost of personal expenses such as telephone calls to his family

Property income

(1) Peter owns two properties, which are let out Both properties are freehold houses, with the first property being let out furnished and the second property being let out unfurnished

(2) The first property was let from 6 April 2012 to 31 August 2012 at a monthly rent

of £500, payable in advance On 31 August 2012 the tenant left owing two months’ rent which Peter was unable to recover The property was not re-let before 5 April 2013 During March 2013 Peter spent £600 repairing the roof of this property

(3) The second property was purchased on 1 July 2012, and was then let from 1 August 2012 to 5 April 2013 at a monthly rent of £820, payable in advance During July 2012 Peter spent £875 on advertising for tenants For the period 1 July 2012 to 5 April 2013 he paid loan interest of £1,800 in respect of a loan that was taken out to purchase this property

(4) Peter insured both of his rental properties at a total cost of £660 for the year ended 30 June 2012, and £1,080 for the year ended 30 June 2013 The insurance is payable annually in advance

(5) Where possible, Peter claims the wear and tear allowance

Other information

(1) During the tax year 2012–13 Peter received building society interest of £1,760 and dividends of £720 These were the actual cash amounts received

(2) On 4 August 2012 Peter received a premium bond prize of £100

(3) During the tax year 2012–13 Peter made gift aid donations totalling £2,340 (net)

(c) Outline the conditions that would have to be fulfilled for Peter Chic’s rental properties to be treated as furnished holiday lettings (4 marks)

(Total: 30 marks)

3 Sammi Smith

You should assume that today’s date is 20 March 2012

Sammi Smith is a director of Smark Ltd The company has given her the choice of being provided with a leased company motor car or alternatively being paid additional director’s remuneration and then privately leasing the same motor car herself

Company motor car

The motor car will be provided throughout the tax year 2012–13, and will be leased by Smark Ltd at an annual cost of £26,540 The motor car will be petrol powered, will have

a list price of £80,000, and will have an official CO2 emission rate of 228 grams per kilometre

The lease payments will cover all the costs of running the motor car except for fuel Smark Ltd will not provide Sammi with any fuel for private journeys

Additional director’s remuneration

As an alternative to having a company motor car, Sammi will be paid additional gross director’s remuneration of £26,000 during the tax year 2012–13 She will then privately lease the motor car at an annual cost of £26,540

Required:

(a) Advise Sammi Smith of the income tax and national insurance contribution implications for the tax year 2012–13 if she (1) is provided with the company motor car, and (2) receives additional director’s remuneration of £26,000 (5 marks)

(b) Advise Smark Ltd of the corporation tax and national insurance contribution implications for the year ended 5 April 2013 if the company (1) provides Sammi Smith with the company motor car, and (2) pays Sammi Smith additional director’s remuneration of £26,000

Note: you should ignore value added tax (VAT) (5 marks)

(c) Determine which of the two alternatives is the most beneficial from each of the respective points of view of Sammi Smith and Smark Ltd (5 marks)

(Total: 15 marks)

4 Firstly plc

On 31 December 2012 Joe Jones resigned as an employee of Firstly plc, and on 1 January 2013 commenced employment with Secondly plc Joe was employed by both companies as a financial analyst The following information is available for the tax year 2012–13:

Employment with Firstly plc

(1) From 6 April 2012 to 31 December 2012 Joe was paid a salary of £11,400 per

(2) Joe contributed 6% of his monthly gross salary of £11,400 into Firstly plc’s HM Revenue and Customs’ registered occupational pension scheme

(3) On 1 May 2012 Firstly plc provided Joe with an interest free loan of £120,000 so that he could purchase a holiday cottage Joe repaid £50,000 of the loan on 31 July

2012, and repaid the balance of the loan of £70,000 when he ceased employment with Firstly plc on 31 December 2012

(4) During the period from 6 April 2012 to 31 December 2012 Joe’s three-year-old daughter was provided with a place at Firstly plc’s workplace nursery The total cost to the company of providing this nursery place was £11,400 (190 days at £60 per day)

(5) During the period 6 April 2012 to 31 December 2012 Firstly plc paid gym membership fees of £1,050 for Joe

(6) Firstly plc provided Joe with a home entertainment system for his personal use costing £4,400 on 6 April 2012 The company gave the home entertainment system to Joe for free, when he left the company on 31 December 2012, although its market value at that time was £3,860

Employment with Secondly plc

(1) From 1 January 2013 to 5 April 2013 Joe was paid a salary of £15,200 per month (2) During the period 1 January 2013 to 5 April 2013 Joe contributed a total of £3,000 (gross) into a personal pension scheme

(3) From 1 January 2013 to 5 April 2013 Secondly plc provided Joe with living accommodation The property has an annual value of £10,400 and is rented by Secondly plc at a cost of £2,250 per month On 1 January 2013 Secondly plc purchased furniture for the property at a cost of £16,320 The company pays for all of the running costs relating to the property, and for the period 1 January 2013

to 5 April 2013 these amounted to £1,900

(4) During the period 1 January 2013 to 5 April 2013 Secondly plc provided Joe with

13 weeks of childcare vouchers costing £100 per week Joe used the vouchers to provide childcare for his three-year-old daughter at a registered nursery near to his workplace

(5) During the period 1 January 2013 to 5 April 2013 Joe used Secondly plc’s company gym which is only open to employees of the company The cost to Secondly plc of providing this benefit to Joe was £340

(6) During the period 1 January 2013 to 5 April 2013 Secondly plc provided Joe with

a mobile telephone costing £560 The company paid for all of Joe’s business and private telephone calls

Required:

(a) Calculate Joe Jones’ taxable income for the tax year 2012–13 (17 marks)

(b) (i) Briefly explain the basis of calculating Joe Jones’ PAYE tax code for the tax

year 2012–13, and the purpose of this code; (2 marks)

(ii) For each of the PAYE forms P45, P60 and P11D, briefly describe the circumstances in which the form will be completed, state who will provide

it, the information to be included, and the dates by which they should have been provided to Joe Jones for the tax year 2012–13 (6 marks)

Note: your answer to both sub-parts (i) and (ii) should be confined to the details

5 William Wong

You are a trainee accountant and your manager has asked for your help regarding the

following two taxpayers

(a) William Wong

William Wong is the finance director of Glossy Ltd The company runs a publishing business The following information is available for the tax year 2012-13:

(1) William is paid director’s remuneration of £2,400 per month by Glossy Ltd (2) In addition to his director’s remuneration, William received two bonus payments from Glossy Ltd during the tax year 2012-13 The first bonus of

£22,000 was paid on 30 June 2012 and was in respect of the year ended 31 December 2011 William became entitled to this bonus on 15 March 2012 The second bonus of £37,000 was paid on 31 March 2013 and was in respect

of the year ended 31 December 2012 William became entitled to this second bonus on 15 March 2013

(3) From 6 April 2012 until 31 December 2012 William used his private motor car for business purposes During this period William drove 12,000 miles in the performance of his duties for Glossy Ltd, for which the company paid

an allowance of 30 pence per mile The relevant HM Revenue and Customs authorised mileage rates to be used as a basis of an expense claim are 45 pence per mile for the first 10,000 miles, and 25 pence per mile thereafter (4) From 1 January 2013 to 5 April 2013 Glossy Ltd provided William with a diesel powered company motor car with a list price of £46,000 The motor car cost Glossy Ltd £44,500, and it has an official CO2 emission rate of 226 grams per kilometre Glossy Ltd also provided William with fuel for his private journeys

(5) William was unable to drive his motor car for two weeks during February

2013 because of an accident, so Glossy Ltd provided him with a chauffeur

(9) William pays an annual professional subscription of £450 to the Institute of Finance Directors, an HM Revenue and Customs approved professional body, and a membership fee of £800 to a golf club He uses the golf club to entertain clients of Glossy Ltd