ACF6EFM_D_13_COMBINED.pdf

7/27/2019 ACF6EFM_D_13_COMBINED.pdf

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ACF6EFM13(D) Questions

This examination has been prepared for the December 2013 sitting

ACCA Fundamentals Level

Paper F6 (FA 2012)

Taxation (UK)

Final Mock Examination

Question Paper

Time allowed

Reading and Planning

Writing

15 minutes

3 hours

ALL FIVE questions are compulsory and MUST be attempted

During reading and planning time only the question paper may be annotated

Instructions:

Take a few moments to review the notes on the inside of this page titled, Get into good exam habits now! before

attempting this exam.

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER

EXAMINATION CONDITIONS


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2 ACF6EFM13(D) Questions


Get into good exam habits now!

Take a moment to focus on the right approach for this exam.

Effective time management

Watch the clock, allocate 1.8 minutes to each mark and move on if you get behind.

Take a few moments to think what the requirements are asking for and how you are going to

answer them.

Remember one mark is usually allocated for each point you give in a discursive question.

Effective planning

This paper is in exactly the same format as the real exam. You should read through the paper and

plan the order in which you will tackle the questions. Always start with the one you feel most

confident about.

Read the requirements carefully: focus on mark allocation, question words (see below) and

potential overlap between requirements.

Identify and make sure you pick up the easy marks available in each question.

Effective layout

Present your numerical solutions using the standard layouts you have seen. Show and reference

your workings clearly.

With written elements try and make a number of distinct points using headings and short

paragraphs. You should aim to make a separate point for each mark.

Ensure that you explain the points you are making ie why is the point a strength, criticism or

opportunity?

Give yourself plenty of space to add extra lines as necessary, it will also make it easier for the

examiner to mark.

Common terminology

State Express, fully or clearly, the details of/facts of

Define Give the exact meaning of

Describe Communicate the key features of

Distinguish Highlight the differences between

Explain Make clear or intelligible/state the meaning of

Identify Recognise, establish or select after consideration

Illustrate Use an example to describe or explain something

Calculate/compute To ascertain or reckon mathematically

Demonstrate To prove with certainty or to exhibit by practical means

Prepare To make or get ready for use

Analyse Examine in detail the structure of

Compare and contrast Show the similarities and/or differences

Discuss To examine in detail by argument

Produce To create or bring into existence

Advise To counsel, inform or notify

Evaluate To appraise or assess the value ofRecommend To advise on a course of action


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ACF6EFM13(D) Questions 3


Tax tables

The following tax rates and allowances are to be used in answering the questions.

Income tax

Normal

rates

Dividend

ratesBasic rate 1 34,370 20% 10%Higher rate 34,371 150,000 40% 32.5%Additional rate 150,001 and over 50% 42.5%

A starting rate of 10% applies to savings income where it falls within the first 2,710 of taxable income.

Personal allowances

Personal allowance standard 8,105Personal allowance aged 65 to 74 10,500Personal allowance aged 75 and over 10,660Income limit for age-related allowances 25,400

Income limit for standard personal allowance 100,000

Car benefit percentage

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

The percentage rates applying to petrol cars with CO2emissions up to this level are:

%75 grams per kilometre or less 576 grams to 99 grams per kilometre 10100 grams per kilometre 11

Car fuel benefit

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

Individual savings accounts (ISAs)

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

Pensionschemelimits

Annual allowance 50,000The maximum contribution that can qualify for tax relief without any earnings is 3,600.

Authorised mileage allowances: cars

Up to 10,000 miles 45pOver 10,000 miles 25p

Capital allowancesPlant and machinery %Main pool 18Special rate pool 8

Motor carsCO2emissions up to 110 grams per kilometre 100CO2emissions between 111 and 160 grams per kilometre 18CO2emissions over 160 grams per kilometre 8

Annual investment allowanceFirst 25,000 of expenditure 100


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Corporation tax

Financial year 2010 2011 2012Small profits rate 21% 20% 20%Main rate 28% 26% 24%

Lower limit 300,000 300,000 300,000Upper limit 1,500,000 1,500,000 1,500,000

Standard fraction: 7/400 3/200 1/100

Marginal relief

Standard fraction (U A) N/A

Value Added Tax

Standard rate 20%Registration limit 77,000Deregistration limit 75,000

Inheritance tax: tax rates

1 325,000 0%Excess death rate 40%

lifetime rate 20%Inheritance tax: taper relief

Years before death % reductionOver 3 but less than 4 years 20Over 4 but less than 5 years 40Over 5 but less than 6 years 60Over 6 but less than 7 years 80

Capital gains tax

Rate of tax for individualsLower rate 18%Higher rate 28%

Annual exempt amount 10,600

Entrepreneurs reliefLifetime limit 10,000,000Rate of tax 10%

National insurance (not contracted-out rates)%

Class 1 Employee 1 7,605 per year Nil7,606 42,475 per year 12.042,476 and above per year 2.0

Class 1 Employer 1 7,488 per year Nil7,489 and above per year 13.8

Class 1A 13.8

Class 2 2.65 per weekSmall earnings exception 5,595

Class 4 1 7,605 per year Nil7,606 42,475 per year 9.042,476 and above per year 2.0

Rates of Interest

Official rate of interest 4%

Rate of interest on underpaid tax 3% (assumed)

Rate of interest on overpaid tax 0.5% (assumed)

Supplementary information

Calculations and workings need only be made to the nearest .All apportionments may be made to the nearest month.

All workings should be shown.


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All FIVE questions are compulsory and MUST be attempted

1 Tracey

(a) Until 30 September 2012, Tracey was employed by Finance Plc when she decided to take acareer break. The following information is available for the tax year 2012/13:

Employment with Finance plc

(1) A monthly salary of 12,000. In addition to her salary, on 12 May 2012 Tracey was paid a

profit related bonus of 5,000. The bonus was based on Finance Plcs results for the year

end 31 December 2011.

(2) During the period from 6 April 2012 to 30 September 2012 Traceys two year old son was

provided with a place at Finance Plcs work place nursery. The total cost to the company

of providing this nursery place was 9,555 (147 days at 65 per day).

(3) On 1 May 2012 Finance Plc provided Tracey with an interest free loan of 50,000 which

she used to purchase an antique vase. Tracey repaid 10,000 of the loan on 30 June 2012

and repaid the balance of the loan when she ceased employment on 30 September 2012.

(4) Finance Plc provided Tracey with a home entertainment system for her personal use

costing 6,000 on 6 April 2012. The company gave the home entertainment system to

Tracey for free when she left the company on 30 September 2012, although its market

value at that time was 4,500.

(5) During the period 6 April 2012 to 30 September 2012 Finance Plc paid gym membership

fees of 1,234 for Tracey.

(6) Tracey contributed 5% of her monthly gross salary of 12,000 into Finance Plcs HM

Revenue and Customs registered occupational pension scheme.

(7) Finance plc paid 9,000 PAYE for 2012/13 in relation to Traceys employment.

Property income

(1) Tracy purchased a house, Redacre, on 1 September 2012, which she let it out

(unfurnished) from 1 October 2012 to 5 April 2013 at a monthly rent of 1,500, payable in

advance. During September 2012 Tracey spent 1,275 on advertising for tenants. For the

period 1 September 2012 to 5 April 2013 she paid interest of 3,700, in respect of a loan

that was taken out to purchase Redacre, and buildings insurance of 413.

(2) Tracy also owned another house, Bluewater, which was let out (furnished) until 31 December

2012 at a monthly rent of 800, payable in advance. On 31 December 2012 the tenant left

owing two months rent which Tracey was unable to recover. Bluewater was not re-let before 5

April 2013. During March 2013 Tracey spent 1,500 repairing the roof of Bluewater. Tracy paidbuildings insurance of 400 for the year from 1 January 2012 and 448 for the year from 1

January 2013.

(3) Where possible, Tracey claims the wear and tear allowance.

Other information

(1) During the tax year 2012/13 Tracey received building society interest of 2,280 and

dividends of 1,890. These were the actual cash amounts received.

(2) On 4 August 2012 Tracey received a premium bond prize of 100.

Required

Calculate the income tax payable by Tracey for the tax year 2012/13. (19 marks)


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(b) In 2011, Tracey purchased a luxury yacht for her own use. Many of her friends wanted to borrow it

for special occasions and in July 2013, she began charging 1,000 per day for the use of the

yacht. Tracy has been advised that the hiring out of the yacht has resulted in taxable profits, but

she has said that she does not wish to disclose them to HM Revenue and Customs.

Required

(i) Briefly explain the difference between tax evasion and tax avoidance, and how

HM Revenue and Customs would view the situation if Tracey does not disclose her

taxable profits in respect of the yacht. (3 marks)

(ii) Briefly explain from an ethical viewpoint how you, as a trainee Chartered Certified

Accountant, should deal with the suggestion from Tracey that no disclosure is made to HM

Revenue and Customs. (3 marks)

(Total: 25 marks)

2 Brandon Ltd

(a) Brandon Ltd is a United Kingdom resident manufacturing company. The companys statement of profit orloss for the year ended 31 March 2013 is as follows:

Note Gross profit 811,400Operating expensesDepreciation 95,000Amortisation of leasehold property 1 8,000Gifts and donations 2 2,650Professional fees 3 17,000Other expenses 4 250,250

(372,900)Operating profit 438,500

Income from investments

Bank interest 5 14,500Dividends 6 70,000

84,500Profit from sale of fixed assetsDisposal of shares 7 78,000

601,000Interest payable 8 (51,000)Profit before taxation 550,000

Note 1 Leasehold property

On 1 April 2012 Brandon Ltd acquired a leasehold office building, paying a premium of 80,000 for thegrant of a new ten-year lease. The office building was used for business purposes by Brandon Ltd

throughout the year ended 31 March 2013. No legal costs were incurred by Brandon Ltd in respect of this

lease.

Note 2 Gifts and donations

Gifts and donations are as follows:

Gifts to customers (pens costing 75 each and displaying Brandon Ltds name) 900Gifts to customers (hampers of food costing 35 each) 1,050Donation to local charity (Brandon Ltd received free advertising in the charitys 700magazine)

2,650


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Note 3 Professional fees

Professional fees are as follows:

Legal fees in connection with the renewal of a 25-year property lease in respect of a 2,500warehouseLegal fees in connection with the issue of loan stock (see note 8)

14,500

17,000

Note 4 Other expenses

The figure of 250,250 for other expenses includes 7,590 for entertaining clients and 5,000 for

entertaining employees.

Note 5 Bank interest received

The bank interest was received on 31 March 2013. There is no accrual at 31 March 2013. The bank

deposits are held for non-trading purposes.

Note 6 Dividends received

During the year ended 31 March 2013 Brandon Ltd received dividends of 25,000 from Dunedin Ltd, a

100% UK subsidiary company, and dividends of 45,000 from Canon Ltd, an unconnected UK company.

Both figures are the actual cash amounts received.

Note 7 Profit on disposal of shares

The profit on disposal of shares is in respect of a 5% shareholding that was sold on 25 September 2012.

The disposal resulted in a chargeable gain of 35,006. This figure is after taking account of indexation.

Note 8 Other information

The interest payable is in respect of the companys 5% loan stock that was issued on 1 April 2012. The

proceeds of the issue were used to finance the companys trading activities. Interest of 25,500 was paid

on 30 September 2012 and again on 31 March 2013.

Note 9 Plant and machinery

On 1 April 2012 the tax written down values of plant and machinery were as follows:

Main pool 20,500Special rate pool 15,200

The following transactions took place during the year ended 31 March 2013:

Cost/(Proceeds)

10 June 2012 Purchased equipment 1,00015 June 2012 Purchased motor car (1)

CO2emissions 150 g/km

10,200

25 September 2012 Purchased motor car (2)CO2emissions 105 g/km

14,500

7 November 2012 Purchased a lorry 21,50027 February 2013 Sold equipment (4,200)

The equipment sold on 27 February 2013 for 4,200 was originally purchased in 2010 for 9,200.

Required

(i) Calculate Brandon Ltds tax adjusted trading profit for the year ended 31 March 2013, after

deducting capital allowances. Your computation should commence with the profit before taxation

figure of 550,000, and should list all of the items referred to in notes (1) to (9) indicating by the

use of zero (0) any items that do not require adjustment. (15 marks)

(ii) Calculate Brandon Ltds corporation tax liability for the year ended 31 March 2013 and state the

date of payment. (5 marks)


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(b) Note that in answering this part of the question you are not expected to take account of any of the

information provided in part (a) above.

The following information is available in respect of Brandon Ltds value added tax (VAT) for the quarter

ended 31 March 2013:

(1) Invoices were issued for sales of 89,200 to VAT registered customers. Of this figure, 70,400

was in respect of exempt sales and the balance in respect of standard rated sales. The standardrated sales figure is exclusive of VAT.

(2) In addition to the above, on 15 March 2013 Brandon Ltd issued a VAT invoice for 10,000 plus

VAT of 2,000 to a VAT registered customer. This was in respect of a contract for standard rated

financial services that will be completed on 30 April 2013. The customer paid for the contracted

services in two instalments of 6,000 on 31 March 2013 and 30 April 2013 respectively.

(3) Invoices were issued for sales of 150,000 to non-VAT registered customers. Of this figure,

120,000 was in respect of exempt sales and the balance in respect of standard rated sales. The

standard rated sales figure is inclusive of VAT.

(4) The managing director of Brandon Ltd is provided with free fuel for private mileage driven in her

company motor car. During the quarter ended 31 March 2013 this fuel cost Brandon Ltd 295.The relevant quarterly scale charge is 366. Both these figures are inclusive of VAT.

For the quarters ended 31 December 2011 and 30 September 2012 Brandon Ltd was two months late in

submitting its VAT returns and in paying the related VAT liabilities. All of the companys other VAT returns

have been submitted on time.

Required

(i) Calculate the amount of output VAT payable by Brandon Ltd for the quarter ended 31 March

2013. (4 marks)

(ii) State the circumstances in which Brandon Ltd is and is not required to issue a VAT invoice.

(3 marks)

(iii) Advise Brandon Ltd of the default surcharge implications if it is one month late in submitting its

VAT return for the quarter ended 31 March 2013 and in paying the related VAT liability. (3 marks)

(Total: 30 marks)

3 Pat

Pat had the following events relating to capital gains tax during the tax year 2012/13:

(1) On 10 July 2012 Pat sold five acres of land for 620,000. Pat had held the land as an investment

since he had inherited it upon the death of his mother on 15 December 2000, when the land was

valued at 182,000. Pats mother had originally purchased the land for 77,000.

(2) On 1 December 2012 an office building, owned by Pat as an investment, was damaged by a fire.

The cost of the office building on that date was 210,000. Pat received insurance proceeds of

63,000 on 10 January 2013, and spent a total of 71,000 during March 2013 on restoring the

office building.

Pat made a claim to defer the gain arising from the receipt of the insurance proceeds.

(3) On 19 September 2012 Pat made a gift of 10,000 1 ordinary shares in Randridge plc to his

daughter. On that date the shares were quoted on the Stock Exchange at 4.60 - 4.80, with

recorded bargains of 4.50, 4.65 and 4.70.


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Pat has made the following purchases of shares in Randridge plc:

17 March 2001 6,000 shares for 12,600

9 September 2009 8,000 shares for 16,500

1 October 2012 2,000 shares for 8,500

Pats total shareholding was less than 5% of Randridge plc and so gift relief is not available.

(4) On 31 December 2012 Pat sold a house for 360,000. The house had been purchased on 1

January 1993 for 50,000.

Pat occupied the house as his main residence from the date of purchase until 31 December 1997.

The house was then unoccupied between 1 January 1998 and 31 December 2001 due to Pat

being required by his employer to work elsewhere in the United Kingdom.

From 1 January 2002 until 30 June 2003 Pat again occupied the house as his main residence.

The house was then unoccupied until it was sold on 31 December 2012.

Throughout the period 1 January 1993 to 31 December 2012 Pat did not have any other main

residence.

Pats taxable income in 2012/13 was 27,370. Pat has capital losses brought forward from 2011/12 of

25,000.

Required

Calculate the capital gains tax payable by Pat for 2012/13 and state the date of payment. (15 marks)

4 Kyle and Millie

(a) On 1 August 2012, Kyle joined a partnership, having been out of work since January 2012. The existing

partners were Ivor and Julie.

The tax adjusted trading profits of the partnership were 100,800 for the year ending 31 December 2012

and are expected to be 120,000 for the year ending 31 December 2013.

The following profit sharing arrangements applied from 1 August 2012:

Ivor Julie KyleAnnual salary 24,000 18,000Profit share 50% 30% 20%

Required

(i) Calculate Kyles share of the adjusted trading profits for the year to 31 December 2012 and the

year to 31 December 2013 and use this to calculate Kyles taxable trading profit for the tax year

2012/13. (8 marks)

(ii) Calculate the class 4 national insurance contributions payable by Kyle for the tax year 2012/13.

(1 mark)

(b) Millie is a sole trader who had been in business for many years and who prepares accounts to 31 October

each year. In the year to 31 October 2013, she had taxable trading profits of 125,000. Millie has no other

sources of income.

Millie is considering making a personal pension contribution of 24,000 (net) on 1 March 2014.

Required

(i) Calculate Millies income tax liability for 2013/14 if she does not make the personal pension

contribution. (2 marks)


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(ii) Calculate Millies income tax liability for 2013/14 if she does make the personal pension

contribution. (4 marks)

You should assume that the tax rates and allowances for the tax year 2012/13 will continue to apply in

2013/14.

(Total: 15 marks)

5 Joan

Joan died on 31 December 2012. She had made the following gifts during her lifetime:

1 July 2006: she gave 250 to each of her ten grandchildren

5 July 2008: she gifted 487,000 to a trust for the benefit of her family. Joan paid any tax due.

The nil rate band in 2008/09 was 312,000.

14 February 2010: she gave her great-granddaughter a wedding gift of 25,000

At the date of her death, Joan owned the following assets:

Her residence, valued at 750,000

A vintage car valued at 30,000Shares held in an ISA valued at 105,000Bank savings account balance 25,000

Joans funeral expenses were 6,500.

Under the terms of her will Joan left 75,000 to her husband, 125,000 to the trust and the balance of her

estate to be shared equally between her three children.

Required

(a) State the amount of any exempt transfers in relation to the lifetime gifts. (3 Marks)

(b) Calculate any lifetime tax payable on the gift to the trust, clearly showing the value of the transfer

to be carried forward. (4 Marks)

(c) Calculate the death tax due on the lifetime gifts. (4 Marks)

(d) Calculate the death tax due on the death estate. (4 Marks)

(Total: 15 marks)


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Student self-assessment

Having completed this paper take a few minutes to consider what you did well and what you found difficult. Use

this as a basis to focus your future study on effectively improving your performance.

Common problems Future emphasis if you answer Yes

Timing and planning

Did you finish too early? Y/N Focus your planning time on generating more ideas.

Use models to help develop width to your thinking.

Did you overrun? Y/N Focus on allocating your time better.

Practise questions under strict timed conditions.

If you get behind leave space and move on.

Did you waffle? Y/N Focus your planning time on developing a logical structure to

your answer.

Layout

Was your answer difficult to follow? Y/N Use headings and subheadings.

Use numbering sequences when identifying points.

Leave space between each point.

Did you fail to explain each point? Y/N Show why the point identified answers the question set.

Were some of your workings unclear? Y/N Give yourself time and space to make the marker's job easy.

Content

Did you struggle with:

Interpreting the questions? Y/N Learn the meaning of question words (inside front cover).

Learn subject jargon (study text glossary).

Read questions carefully noting all the parts.

Practise as many questions as possible.

Understanding the subject? Y/N Review your notes/text.

Work through easier examples first.

Contact a tutor for help.

Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to develop your

memory as well as your understanding of a subject.


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BPP House, Aldine Place, London W12 8AA

Tel: 0845 0751 100 (for orders within the UK)

Tel: +44 (0)20 8740 2211

Fax: +44 (0)20 8740 1184

www.bpp.com/learningmedia


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ACF6EFM13(D) Suggested solutions

The examination has been prepared for the December 2013 sitting

ACCA Fundamentals Level

Paper F6 (FA 2012)

Taxation (UK)

Final Mock Examination

Guidance, Marking scheme and

Suggested solutions


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2 ACF6EFM13(D) Suggested solutions


Guidance on improving your exam performance

Which questions to do first?

It is important for you to decide which order to attempt the questions. Each question will carry different marks so

you may prefer to attempt the question with the most marks first or, instead, you may prefer to attempt the topic

you are more confident about first. This means you will build up marks early on giving you a solid base to tackle

the harder questions later.

Whichever you choose, do not spend too long on the questions you are confident about as you need to spend an

appropriate amount of time on them all. You can work out how much time you should spend on each by looking

at the mark allocation and multiplying by 1.8 (as you have 1.8 minute per mark, not including reading time). For

instance, you must not spend more than 27 minutes on a 15-mark question. Remember, you cannot pass the

exam answering two or three questions well and the rest poorly.

An alternative strategy is to answer all questions in strict order. You could use the time saved choosing the order

by starting to plan your answers. You may prefer to use this method if you find yourself spending too long on

your favourite questions as it forces you to spend an appropriate amount of time on each before moving on.

Strategy

Make sure your answers are easy to follow. The focus of the exam is computations, so make sure you use the

correct proformas and show your workings, referenced in clearly.

If there is a written element to a question do write full sentences, even if you are using bullet points.

Time management

Use the reading time to make sure that you get as many of the marks as possible. This is your opportunity to

brainstorm areas that you are less confident with and even to make a brief outline of the proformas you are going

to use in your answers.

Whatever notes/plans you make, use them when writing up your answer when the writing time begins. Tick off

each item as you complete it. If you do not use your planning notes it was a waste of time doing them in the first

place.

Never overrun on any question; once the time is up move on to the next one.


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ACF6EFM13(D) Suggested solutions 3


1 Tracey

Marking scheme1 (a)

Salary Occupational pension scheme contributions 1Bonus Workplace nursery 1Beneficial loan Average method 1

Strict method 1Home entertainment system Use 1

Acquisition 1Gym membership Property business profit:

Rent receivable 1Advertising Loan interest Impairment losses Repairs Insurance 1Wear and tear allowance 1

Tax Computation

Building society interest Dividends Premium bond prize Personal allowance Income tax 1Tax suffered at source 1 19

1 (b) (i)Tax evasion 1Tax avoidance 1HMRC view 1

31 (b) (ii)

Professional judgment and standard of conduct 1Advise Tracey to disclose 1Cease to act and inform HMRC Make money laundering report

3Total 25


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Suggested solution

Text references.The income tax computation is dealt with in Chapter 2. Employment income is in

Chapter 3 and benefits in Chapter 4. Property income is covered in Chapter 6. Tax avoidance and tax

evasion, and ethics are dealt with in Chapter 1.

Top tips. Use workings to show the details of your computations rather than putting them in the main

computation of tax.

Easy marks. There were some easy marks here for working out the employment benefits and the

property income.

1 (a)

Tracey - 2012/13 Income Tax Computation

Non savings Savings Dividend

Employment income (w1) 81,367Property income (w3) 6,740Building society interest (BSI) 2,280 100/80 2,850Dividends 1,890 100/90 2,100Premium Bond Prize Exempt ______ ______ ______Net income 88,107 2,850 2,100Less personal allowance (8,105) ______ _____Taxable income 80,002 2,850 2,100

Tax

At 20% 34,370 6,874At 40% 45,632 18,253At 40% 2,850 1,140

At 32.5% 2,100 682Tax liability 26,949

Tax paid:

Dividends 2,100 10% 210PAYE 9,000BSI 2,850 20% 570

(9,780)Income tax payable 17,169

Working 1 Employment income

Salary (12,000 6) 72,000

Contributions to Occupational Pension Scheme72,000 5% ( 3,600)

Bonus (received in year) 5,000Work place nursery ExemptInterest free loan (w2) 733Home entertainment system:Use of: 6,000 20% 6/12 600

Gift of:

Greater of Original MV 6,000Less use benefit ( 600) 5,400 5,400MV when given 4,500

Gym membership 1,234Employment income 81,367


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Working 2 Interest benefit

Average basis: (50,000 + (50,000 10,000))/2 4% 5/12 750

Strict basis: 50,000 4% 2/12 333

40,000 4% 3/12 400 733

Tracey should elect for the strict basis to apply.

W3 Property income

Rent receivable Redacre 6 1,500 9,000

Bluewater 9 800 7,200ExpensesAdvertising 1,275Interest 3,700Irrecoverable rent 2 800 1,600Repairs 1,500Insurance

Redacre 413Bluewater400 9/12 300448 3/12 112Wear & Tear allowance(7,200 1,600) 10% 560 (9,460)Property income 6,740

1 (b) (i)

Tax evasion is illegal and involves reducing tax liabilities by not providing information to which HMRC is

entitled or by providing HMRC with deliberately false information.

Tax avoidance involves the minimisation of tax liabilities by the use of any lawful means, such as investing

in an individual savings account.

If Tracey makes no disclosure of the taxable profits for the letting out of the yacht, this will be viewed as

tax evasion by HMRC.

1 (b) (ii)

This matter is one of professional judgement and a trainee Chartered Certified Accountant would be

expected to act honestly and with integrity.

Tracey should therefore be advised to disclose the taxable profits to HMRC.

If such disclosure is not made, you should consider ceasing to act for Tracey. If you do cease to act for

her, you should inform HMRC of this fact but you do not need to provide any reason.

A report should also be made under the money laundering regulations.


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2 Brandon Ltd

Marking scheme

2 (a) (i)

Profit before taxation Depreciation Amortisation of leasehold property Gifts of pens to customers Gifts of hampers to customers Donation Legal fees re renewal of lease Legal fees re issue of loan stock Entertaining clients Entertaining employees Bank interest received Dividends received

Disposal of shares Interest payable Lease premium Assessable amount 1

Deduction 1P & M Main pool 2

AIA 1 Special rate pool 1 FYA 1

15

2 (a) (ii)

Trading profit Bank interest

Chargeable gain Franked investment income Group dividends Corporation tax 2Due date

5

2 (b) (i)

Sales VAT registered customers 1 Additional contract 1 Non-VAT registered customers 1

Fuel scale charge 14

2 (b) (ii)

Taxable supply to VAT registered customers 1Exempt supplies 1Not VAT registered 1

3

2 (b) (iii)

Previous late submissions 1Surcharge 1Extension of surcharge period 1 3Total 30


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Suggested solution

Text references.Computing taxable total profits is in Chapter 19 and the computation of corporation

tax in Chapter 20. Capital allowances are dealt with in Chapter 8. VAT is the subject of Chapters 26

and 27.

Top tips. You must follow the instructions in the question start with theprofit before taxation figure

and indicate with a zero any items which do not require adjustment. You will not gain the available

marks if you simply omit such items.

Easy marks. The point about invoices in part (b)(ii) was straightforward.

2 (a) (i)

Brandon Ltd Trading profit for the year ended 31 March 2013

Profit before taxation 550,000AddDepreciation

95,000

Amortisation of leasehold property 8,000Gifts of pens to customers 900Gifts of hampers to customers 1,050Donation 0Legal fees re renewal of lease 0Legal fees re issue of loan stock 0Entertaining clients 7,590Entertaining employees 0 112,540

Less

Bank interest 14,500

Dividends 70,000Profit on disposal of shares 78,000Interest payable 0Deduction for lease premium (w 1) 6,560Capital allowances (w 2) 42,986 (212,046)Trading profit 450,494

Working 1 Deduction for lease premium

The office building has been used for business purposes, and so the proportion of the lease premium

assessed on the landlord can be deducted, spread over the life of the lease.

The amount assessed on the landlord is 65,600 calculated as follows:

Premium received 80,000Less:80,000 2% (10 1) (14,400)Taxable as property income 65,600

This is deductible over the life of the lease, so the deduction for the year ended 31 March 2013 is 6,560

(65,600/10).


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Working 2 Capital allowancesMain Special rate

AIA FYA pool pool Allowances

TWDV b/f 20,500 15,200Additions qualifying for 1,000AIA 21,500AIA (100%) (22,500) 22,500Addition not qualifyingfor AIA

10,200

Addition qualifying forFYA (low emission car) 14,500FYA 100% (14,500) 14,500Disposal (4,200)

26,500WDA @ 18% (4,770) 4,770

WDA @ 8% (1,216) 1,216TWDVs c/f 21,730 13,984

Allowances 42,986

Tutorial notes:

(1) Gifts to customers are only an allowable deduction if they cost less than 50 per recipient per

year, are not of food, drink, tobacco, or vouchers for exchangeable goods, and carry a

conspicuous advertisement for the company making the gift.

(2) The costs of renewing a short-lease (less than 50 years) and of obtaining loan finance are

allowable.

(3) The only exception to the non-deductibility of entertainment expenditure is when it is inrespect of

employees.

(4) Interest on a loan used for trading purposes is deductible in calculating the trading profit on anaccruals basis.

(5) The cost of the equipment sold will have originally been added to the main pool, so the disposal

proceeds of 4,200 are deducted from that pool.

(a) (ii)

Brandon Ltd Corporation tax computation for the year ended 31 March 2013

Trading profit (part (a)) 450,494Bank interest 14,500Chargeable gain 35,006Taxable total profits 500,000Franked investment income (45,000 100/90) 50,000Augmented profits 550,000

Corporation tax

500,000 at 24% 120,000Marginal relief 1/100 (750,000 550,000) 500,000/550,000 (1,818)Payable 1 January 2014 118,182

Notes

Brandon Ltd has one associated company, so the upper limit is reduced to 750,000 (1,500,000/2).

Group dividends are not included as franked investment income.


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(b) (i)

SalesVAT registered customers (89,200 70,400 = 18,800 20%) 3,760Additional contract (tax point = invoice date, 15 March 2013) 2,000

Non-VAT registered customers (150,000 120,000 = 30,000 20/120) 5,000Fuel scale charge (366 20/120) 6110,821

(b) (ii)

Brandon Ltd must issue a VAT invoice when it makes a taxable supply to a VAT registered customer,

but there is no requirement to do so if the supply is exempt or if the supply is to a non-VAT registered

customer.

(b) (iii)

Brandon Ltd was late in submitting VAT returns and paying the related VAT liability for the quarters 31

December 2011 and 30 September 2012. The company has not managed to revert to a clean default

surcharge record by submitting four consecutive VAT returns on time.The late payment of VAT for the quarter ended 31 March 2013 will therefore result in a surcharge of 5%

of the VAT liability for that period, although this will not be collected if it is less than 400.

In addition, the surcharge period will be extended to 31 March 2014.


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3 Pat

Marking scheme

2012/13 Computation

Loss b/f Annual Exempt Amount Basic rate band remaining 18/28% charge 1Due date

Workings:

Land 1Office 2Shares - deemed proceeds 2

- cost 1- pool 2

House - calculation of gain 1- PPR working 2

Total 15

Suggested solution

Text references.Computing chargeable gains is dealt with in Chapter 13, including compensation.

The principal private residence exemption is covered in Chapter 14. Shares and securities are to be

found in Chapter 16.

Top tips. Make sure you deal with each asset separately and then bring the gains together in a

summary computation before deducting losses brought forward and the annual exempt amount.

Easy marks. There were easy marks available for deducting the annual exempt amount andcomputing the capital gains tax payable. Did you remember to state the due date? This was another

easy half mark.

2012/13 Capital Gains Summary

Land (w1) 438,000Office (w2) nilRandridge Shares (w3) 20,871House (w6) 100,750

559,621Loss b/f (25,000)Annual Exempt Amount (10,600)Taxable Gains 524,021

Tax

At 18% (34,370 27,370) = 7,000 1,260At 28% (524,021 7,000) = 517,021 144,766CGT payable 31 January2014 146,026

Working 1 - Land

Proceeds 620,000Cost (182,000)

Gain 438,000


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Working 2 - Office Building

The insurance proceeds of 63,000 received by Pat have been fully applied in restoring the office

building.

There is therefore no disposal on the receipt of the insurance proceeds.

Working 3 - Randridge Plc

Ordinary shares in Randridge plc

Deemed proceeds (10,000 4.60) 46,000Cost (w4, w5) (25,129)Gain 20,871

The shares in Randridge plc are valued at 4.60 ((4.50 + 4.70)/2) as this is lower than 4.65 (4.60 +

1/4(4.80 4.60))

Working 4 - Matching rules

The disposal is first matched against the 2,000 shares purchased on 1 October 2012 (this is within the

following 30 days), and then against the shares in the share pool.

The cost of the shares disposed of is, therefore, 25,129 (8,500 + 16,629 (w5)).

Working 5 Share poolNumber Cost

Purchase 17 March 2001 6,000 12,600Purchase 9 September 2009 8,000 16,500

14,000 29,100Disposal 19 September 2012(29,100 8,000/14,000) (8,000) (16,629)Carry forward 6,000 12,471

Working 6 - House

Disposal proceeds 360,000Cost (50,000)

310,000Principal private residence exemption (w7) (209,250)Chargeable 100,750

Working 7 PPR exemption

The total period of ownership of the house is 20 years, of which 13.5 years qualify for exemption as

follows:

Exempt ChargeableYears Years

1 January 1993 to 31 December 1997 (occupied) 51 January 1998 to 31 December 2001 (working in UK) 41 January 2002 to 30 June 2003 (occupied) 1.51 July 2003 to 31 December 2009 (unoccupied,no reoccupation) 6.51 January 2010 to 31 December 2012 (final 36 months) 3

13.5 6.5The exemption is, therefore, 209,250 (310,000 13.5/20).


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4 Kyle and Millie

Marking scheme

4 (a) (i)

Period from 1 August 2012 to 31 December 2012

Profit for period 1Salaries 2Kyles profit share Year to 31 December 2013Profit Salaries 1Kyles profit share Kyles taxable trading profit for 2012/131 August 2012 to 31 December 2012 11 January 2013 to 5 April 2013 1

84 (a) (ii)Class 4 NICs 14 (b) (i)No pension contribution madeNet income No personal allowance Income tax 1

24 (b) (ii)Pension contribution madePersonal allowance available 1Basic rate band extension 1

Income tax 14

Total 15

Suggested solution

Text references.Partnerships are covered in Chapter 11 and the basis of assessment in Chapter 9.

The effect of making personal pension contributions is covered in Chapters 2 and 5.

Top tips. In part (a)(i), since you are only required to compute Kyles share of the adjusted trading

profits, it is not necessary to set out the full partnership computation. In part (b)(ii), it is important that

you set out the computation of adjusted net profits in a separate working and dont try to incorporate it

in the income tax computation.

Easy marks. In part (a) (i) there were some easy marks for the calculation of taxable trading profit for

2012/13 for Kyle if you remembered that the opening year rules applied. In part (b)(i) the income tax

computation was straightforward.


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4 (a) (i)

Kyles share of the adjusted trading profits and taxable trading profit for 2012/13

Period from 1 August 2012 to 31 December 2012Profit Kyle

Profit 100,800 5/12 42,000Salary payable to Julie 24,000 5/12 (10,000)Salary payable to Kyle 18,000 5/12 (7,500) 7,500Profit for distribution 24,500Kyles profit share 24,500 20% 4,900Kyles share of adjusted trading profits 12,400

Year to 31 December 2013Profit Kyle

Profit 120,000Salary payable to Julie (24,000)

Salary payable to Kyle (18,000) 18,000Profit for distribution 78,000Kyles profit share 78,000 20% 15,600Kyles share of adjusted trading profits 33,600

Taxable trading profit for 2012/13

1 August 2012 to 31 December 2012 12,4001 January 2013 to 5 April 2013 3/12 33,600 8,400Taxable trading profit for 2012/13 20,800

4 (a) (ii)

Class 4 national insurance contributions for the tax year 2012/13

(20,800 7,605) = 13,195 9% 1,188

4 (b) (i)

Millie income tax liability for 2013/14 if no pension contribution made

Net income 125,000Less Personal allowance (nil)Taxable income 125,000

Income taxAt 20% 34,370 6,874At 40% (125,000 34,370) = 90,630 36,252Income tax liability 43,126

Millie income tax liability for 2013/14 if pension contribution made

Net income 125,000Less personal allowance (w1) (8,105)Taxable income 116,895

Income taxAt 20% 64,370 (w2) 12,874At 40% (116,895 64,370) = 52,525 21,010Income tax liability 33,884


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Working 1 Personal allowance

Net income 125,000

Less gross pension contribution 24,000 100/80 (30,000)Adjusted net income 95,000

As adjusted net income is less than 100,000, the personal allowance is available in full.

Working 2 Basic rate limit

The basic rate limit is increased by an amount equal to the gross pension contribution of

24,000 100/80 = 30,000, to 64,370.


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5 Joan

Marking scheme

5(a)

Small Gift Exemption Annual Exemptions 1Marriage Exemption 1Annual Exemption

3

5(b)

CLT (net) 1Nil band 1Charge at 20/80 1Gross CLT to carry forward 1

4

5(c)Gross CLT brought forward Nil band 40% charge Taper relief Life tax paid Nil band to PET 40% charge No taper

4

5(d)

Death Estate ( per entry) 3No nil band 40% charge

4Total 15


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Suggested solution

Text references.Inheritance tax is covered in Chapter 18.

Top tips. It is important to realise that amount of the transfer covered by the nil rate band is still

chargeable to IHT, just at 0%. This means that the amount of the transfer to be accumulated is the full

amount of the transfer not just the part which is chargeable at 20% or 40%.

Easy marks. The exemptions in part (a) were easy marks if you did not know these amounts, youmust make sure that you learn them!

5 (a)

Gifts to Grandchildren

Small gift exemption 250 for each gift

Gift to Trust

Annual Exemption 2008/09 3,000

2007/08 b/f 3,000

Wedding Gift to Great-granddaughter

Marriage Exemption (remoter ancestor) 2,500

Annual Exemption 2009/10 3,000

5 (b)

Lifetime tax

Gift to Trust

Gift 487,000Less: annual exemptions (part (a)) (6,000)Net CLT 481,000

Tax

At nil 312,000At 20/80 169,000 42,250

Gross CLT (481,000 + 42,250) = 523,250


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5 (c)

Death Tax on Life Gifts

Gifts to Grandchildren

Exempt (covered by small gift exemption)

Gift to Trust

Gross Chargeable Transfer 523,250

Tax

At nil 325,000At 40% 198,250 79,300Less Taper (4 5 years) 40% (31,720)Death Tax 47,580Life Tax Paid (42,250)Payable 5,330

Gift to Great-granddaughter

Gift 25,000Less: marriage exemption (part (a)) (2,500)

annual exemption (part (a)) (3,000)PET 19,500TaxAt nil all nil band used by trust nilAt 40% 19,500 7,800Less Taper < 3years nilPayable 7,800

5 (d)

Death Estate

Residence 750,000Car 30,000ISA Shares 105,000Bank account 25,000Gross estate 910,000Funeral expenses (6,500)Net estate 903,500Gift to spouse (exempt) (75,000)Chargeable estate 828,500

Tax

At nil (nil band used) nilAt 40% 828,500 331,400


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BPP House, Aldine Place, London W12 8AA

Tel: 0845 0751 100 (for orders within the UK)

Documents

ACF6EFM_D_13_COMBINED.pdf