F6 - Revision Mock - D11 - Questions

ACCA REVISION MOCK

Taxation

(United Kingdom)

December 2011 Question paper

Time allowed

Reading and planning: 15 minutes

Writing: 3 hours

All FIVE questions are compulsory and MUST be attempted.

Tax rates and allowances are on pages 3 – 5

Do NOT open this paper until instructed by the supervisor.

During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor.

This question paper must not be removed from the examination hall.

Kaplan Publishing/Kaplan Financial

Paper F6 (UK)

PAPER F6 (UK) : TAXATION

2 KAPLAN PUBLISHINGH

© Kaplan Financial Limited, 2011

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TAX RATES AND ALLOWANCES: QUESTIONS

KAPLAN PUBLISHING 3

TAX RATES AND ALLOWANCES SUPPLEMENTARY INSTRUCTIONS 1. Calculations and workings need only be made to the nearest £. 2. All apportionments should be made to the nearest month. 3. All workings should be shown.

INCOME TAX Normal

rates

Dividend

rates

% %

Basic rate £1 – £37,400 20 10

Higher rate £37,401 to £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 £2,440 of taxable income.

Personal allowances

Personal allowance Standard £6,475

Personal allowance 65 – 74 £9,490

Personal allowance 75 and over £9,640

Income limit for age related allowances £22,900

Income limit for standard personal allowance £100,000

Car benefit percentage

The base level of CO2 emissions is 130 grams per kilometre.

%

Petrol cars with CO2 emissions of 75 grams per kilometre or less 5

Petrol cars with CO2 emissions between 76 and 120 grams per kilometre 10

Car fuel benefit

The base figure for calculating the car fuel benefit is £18,000.

Pension scheme limits

The maximum contribution that can qualify for tax relief without any earnings is £3,600.

Authorised mileage allowance: cars

Up to 10,000 miles 40p Over 10,000 miles 25p



Capital allowances

Rate of allowance

Plant and machinery %

Main pool 20

Special rate pool 10

Motor cars (purchases since 6 April 2009 (1 April 2009 for limited companies)) CO2 emissions up to 110 grams per kilometre 100 CO2 emissions between 111 and 160 grams per kilometre 20 CO2 emissions above 160 grams per kilometre 10 Annual investment allowance

First £100,000 of expenditure 100

Industrial buildings Writing‐down allowance 1

CORPORATION TAX

Financial year 2008 2009 2010 Small profits rate 21% 21% 21% Main rate 28% 28% 28% Lower limit £300,000 £300,000 £300,000 Upper limit £1,500,000 £1,500,000 £1,500,000 Standard fraction 7/400 7/400 7/400

Marginal relief

Standard fraction (U – A) N/A

VALUE ADDED TAX

Standard rate of VAT – Up to 3 January 2011 17.5% – From 4 January 2011 onwards 20% Registration limit £70,000 Deregistration limit £68,000

INHERITANCE TAX

Tax rates

% £1 – £325,000 Nil Excess – Death rate 40

– Lifetime rate 20

TAX RATES AND ALLOWANCES: QUESTIONS

KAPLAN PUBLISHING 5

INHERITANCE TAX

Taper relief

Years before death: % reduction More than 3 but less than 4 years 20 More than 4 but less than 5 years 40 More than 5 but less than 6 years 60 More than 6 but less than 7 years 80

CAPITAL GAINS TAX

Rates of tax – Lower rate 18%

– Higher rate 28%

Annual exemption £10,100

Entrepreneurs’ relief – Lifetime limit £5,000,000

– Rate of tax on gain 10%

NATIONAL INSURANCE CONTRIBUTIONS

(Not contracted out rates) %

Class 1 Employee £1 – £5,715 per year Nil

£5,716 – £43,875 per year 11.0

£43,876 and above per year 1.0

Class 1 Employer £1 – £5,715 per year Nil


Class 1A 12.8

Class 2 £2.40 per week

Class 4 £1 – £5,715 per year Nil

£5,716 – £43,875 per year 8.0


RATES OF INTEREST

Official rate of interest: 4.0%

Rate of interest on underpaid tax: 3.0%

Rate of interest on overpaid tax: 0.5%



REVIS ION MOCK QUESTIONS

KAPLAN PUBLISHING 7

ALL FIVE questions are compulsory and MUST be attempted

1 On 5 August 2010 Jackie Smith resigned as an employee of IT‐Tastic plc. The company had employed her as a IT consultant since 2001. On 6 August 2010 Jackie commenced self‐employment running her own consultancy business, preparing accounts to 5 April.

The following information is available for 2010/11.

Employment

(1) During the period 6 April 2010 to 5 August 2010 Jackie’s total gross salary from her employment with IT‐Tastic plc was £25,000. Income tax of £4,925 was deducted from this figure under PAYE.

(2) During the period 6 April 2010 to 5 August 2010 IT‐Tastic plc provided Jackie with a petrol‐powered company motor car with a list price of £19,500. The official CO2 emission rate for the motor car was 213 grams per kilometre. IT‐Tastic plc also provided Jackie with fuel for private journeys. Jackie paid £100 per month to IT‐Tastic plc for the use of the motor car, and she also made a capital contribution of £3,000 towards the cost of the motor car when it was first provided to her. The motor car was not available to Jackie after 5 August 2010.

(3) On 1 January 2009 IT‐Tastic plc had provided Jackie with an interest‐free loan of £60,000 so that she could purchase a motorhome. Jackie repaid £45,000 of the loan on 5 May 2010, and repaid the balance of the loan of £15,000 on 6 August 2010.

(4) During the period from 6 April 2010 to 5 August 2010 Jackie was provided with free meals in IT‐Tastic plc’s staff canteen. The total cost of these meals to the company was £470.

Self‐employment

(1) Jackie’s tax adjusted trading loss for the period 6 August 2010 to 5 April 2011 was £11,440. This figure is before taking account of the information in Note (2) below and capital allowances.

(2) During the period 6 August 2010 to 5 April 2011 Jackie paid patent royalties of £500 (gross) in respect of specialised software that she uses in her consultancy business.

(3) Jackie purchased the following assets during the eight‐month period ended 5 April 2011: £ 10 August 2010 Computer 1,257 16 August 2010 Office furniture 2,175 13 November 2010 Motor car (1) 11,700 21 January 2011 Motor car (2) 20,025

Motor car (1) purchased on 13 November 2010 has CO2 emissions of 135 grams per kilometre, is used by an employee, and 15% of the mileage is for private purposes.

Motor car (2) purchased on 21 January 2011 has CO2 emissions of 165 grams per kilometre, is used by Jackie, and 20% of the mileage is for private purposes.

PAPER F6 (UK) : TAXATION (FA2010)

8 KAPLAN PUBLISHING

Other information

(1) During the period 6 April 2010 to 5 August 2010 Jackie paid interest of £125 (gross) on a personal loan taken out on 1 August 2009 to purchase a computer for use in her employment with IT‐Tastic plc.

(2) Jackie’s total income for each of the years 2004/05 to 2009/10 was £85,000.

Required:

(a) Calculate Jackie’s tax adjusted trading loss for 2010/11. (6 marks)

(b) Assuming that Jackie claims loss relief against her total income for 2010/11, calculate the income tax repayable to her for 2010/11. (15 marks)

(c) Describe the alternative ways in which Jackie could have relieved her trading loss for 2010/11 against total income, and explain why these claims would have been more beneficial than the actual claim made in (b) above.

You should assume that the tax rates for 2010/11 apply throughout. (4 marks)

(Total: 25 marks)

2 (a) Express Security Ltd is a UK resident company that manufactures in‐car security systems.

The company’s summarised income statement for the year ended 31 March 2011 is as follows:

£ £ Gross profit 850,668 Operating expenses

Irrecoverable debts (Note 1) 1,740 Depreciation 151,534 Gifts and donations (Note 2) 5,100 Professional fees (Note 3) 24,048 Rent and rates (Note 4) 134,400 Other expenses (Note 5) 178,298

–––––––– (495,120) ––––––– Operating profit 355,548 Profit from sale of office building (Note 6) 75,864 Income from investments

Dividend received (Note 7) 10,200 UK Bank interest (Note 8) 19,920

––––––– 461,532 Interest payable (Note 9) (44,000) ––––––– Profit before taxation 417,532 –––––––


KAPLAN PUBLISHING 9

Note 1 – Irrecoverable debts Irrecoverable debts are as follows:

£ Trade debts recovered from previous years (960) Increase in allowance for specific trade receivables 2,700 –––––

1,740 –––––

Note 2 – Gifts and donations

Gifts and donations are as follows: £

Gifts to customers Diaries costing £25 each with Express Security Ltd’s logo 2,650 Hampers of food costing £100 each 1,100

Donation to national charity (made under the Gift Aid scheme) 1,350 –––––

5,100 –––––

Note 3 – Professional fees

Professional fees are as follows: £

Accountancy and audit fee 9,648 Legal fees in connection with the – issue of share capital

12,720

– renewal of a 15‐year property lease 1,680 –––––– 24,048 ––––––

Note 4 – Rent and rates

Rent and rates includes a premium of £72,000 that was paid on 1 April 2010 for the grant of a 15‐year lease on an office building.

Note 5 – Other expenses

Other expenses include £8,088 for entertaining customers, £5,736 for entertaining employees, and the cost of £4,320 for seconding an employee to a charity. The remaining expenses are all allowable.

Note 6 – Disposal of office building

The profit of £75,864 is in respect of a freehold office building that was sold on 14 February 2011 for £290,274. The office building was purchased in November 2002 for £214,410. The indexation allowance from November 2002 to February 2011 was £63,894.

Note 7 – Dividend received

The dividend was received from a non‐connected UK resident company on 30 November 2010.


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Note 8 – UK bank interest received

The bank deposits are held for non‐trading purposes. Interest of £10,650 was received on 30 September 2010 and £9,270 on 31 March 2011. There was no interest receivable at 31 March 2010 or 31 March 2011.

Note 9 – Interest payable

The interest is in respect of loan notes used for trading purposes.

Note 10 – Industrial building

On 1 January 2004, Express Security Ltd had purchased for £300,000 (excluding land) a new factory which qualified for industrial buildings allowance. It was brought into industrial use immediately.

Note 11 – Plant and machinery

On 1 April 2010 the tax written down values of plant and machinery were as follows:

£ General pool 95,620 Short‐life asset 13,440

The following transactions took place during the period ended 31 March 2011:

Cost/ (proceeds)

£ 5 May 2010 Purchased equipment 100,800 22 June 2010 Purchased a computer 11,760 11 September 2010 Purchased a motor car 12,200 15 October 2010 Sold a lorry (14,160) 12 December 2010 Sold the short‐life asset (5,520)

The motor car purchased on 11 September 2010 has a CO2 emission rate of 108 grams per kilometre.

The lorry sold on 15 October 2010 for £14,160 originally cost £21,600.

Note 12 – Other information

Express Security Ltd has one 80% owned associated company. This company did not make any capital additions during the period.

Required:

(i) Calculate Express Security Ltd’s tax adjusted trading profit for the year ended 31 March 2011.

Your computation should commence with profit before tax figure of £417,532, 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. (13 marks)

(ii) Calculate Express Security Ltd’s corporation tax liability for the year ended 31 March 2011. (4 marks)


KAPLAN PUBLISHING 11

(iii) State the effect on the taxable total profits of Express Security Ltd if it made a claim to roll over the chargeable gain against the cost of a new freehold office building.

The new building was purchased by its only associated company in November 2011 for £285,000.

Both buildings have been / are to be used 100% for trading purposes.

(3 marks)

(b) Standard Merchandise Ltd prepares value added tax (VAT) returns on a quarterly basis. It does not operate the cash accounting scheme.

During the company’s quarter ended 31 March 2011 the following transactions occurred:

£ Standard‐rated sales 137,500 Zero‐rated sales 37,500 Standard‐rated purchases 75,000

The above three amounts are stated exclusive of VAT where applicable.

The company offers a 5% discount to customers who pay within 30 days. This discount is offered on all sales but only 50% of customers settle within the discount period.

The company also paid the following expenses during the same VAT quarter:

£ Electricity 5,000 Wages 35,000 Accountancy fees 1,250 Standard rated expenses (including petrol cost) 20,000 Machine repairs 3,125

All suppliers are VAT registered and the above amounts are stated inclusive of VAT where applicable.

The company also incurred the following capital expenditure in the quarter to 31 March 2011:

£ Machinery 15,000 Motor car on 1 January 2011 18,000

Both these amounts are inclusive of VAT.

The motor car purchased on 1 January 2011 is for the use of its sales manager. The sales manager is also provided with free petrol for private mileage. The car has CO2 emissions of 165 g/km and the relevant quarterly scale charge is £290, inclusive of VAT.

Required:

Calculate the VAT due for the quarter ended 31 March 2011 (10 marks)

(Total: 30 marks)



3 Chris Broad who is aged 46 made the following disposal of assets during the tax year 2010/11:

(1) 1 July 2010:

Sold his main residence for £168,000. Chris had purchased his main residence on 1 July 1989 for £37,350.

He moved into the property immediately on 1 July 1989 and occupied it until he moved abroad to take up employment on 1 September 1991.

He returned to the UK and reoccupied the property on 1 May 1996.

He remained in the property until 1 January 1997 when he moved to another UK city on a temporary work secondment.

On 1 January 2002 he returned to the property.

On 1 March 2004 he moved to his parents’ home to take care of his sick mother. Chris never returned to the property after 1 March 2004.

(2) 16 July 2010:

2,000 shares in ABC plc (less than 1% of ABC's issued share capital) were given to his son in reward for him passing his accounting examinations.

These were the only shares held by Chris and had cost him £3,363 in April 2001.

The stock exchange daily listing on 16 July 2010 showed quoted prices of £4.50 – £4.90. Recorded bargains during the day were made at £4.40, £4.50, £4.60, £4.90 and £5.00.

(3) 15 October 2010:

A quarter share in an antique necklace for £18,000. The necklace had been purchased for £8,200 in July 2001.

The market value of the remaining three quarters interest in the necklace in October 2010 was £62,000.

(4) 3 March 2011:

Chris sold 10,000 shares in Wide and Tall Ltd for £45,000. He had acquired the shares for £30,000 in August 2006.

The shares represented a 20% holding and Chris has worked for the company since 1 January 2005.

Chris’s net income for 2010/11 is £41,475.

Required:

Compute Chris's capital gains tax liability for the tax year 2010/11, and advise him by when this should be paid. (Total: 15 marks)

4 Betty Benjamin died on 14 February 2011. She had made the following lifetime gifts:

8 March 2003 £225,000 to a trust

18 January 2006 £154,000 to her husband

25 June 2007 £66,000 to her daughter when she married

2 September 2007 £340,000 to a trust.


KAPLAN PUBLISHING 13

Betty Benjamin paid any IHT arising from the gifts to the trusts.

At the date of her death Betty Benjamin owned the following assets:

A holiday cottage valued at £260,000, with an outstanding endowment mortgage of £60,000.

Units in the Microdot environmental Trust, a unit trust, valued at £16,800.

Cash deposits in individual savings accounts of £19,500.

A motor car valued at £10,700.

A life assurance policy on her own life. On 14 February 2011 the policy had an open market value of £50,000, and proceeds of £56,000 were received following Betty’s death.

On 14 February 2011 Betty owed £3,500 in respect of a personal loan from a bank, and had gambling debts of £700. The cost of her funeral amounted to £4,120.

Under the terms of her will Betty left £125,000 to her husband, a specific legacy of £35,000 to her younger brother, and the residue of the estate to her children.

Nil rate bands for earlier years are as follows:

£

2002/03 250,000

2005/06 275,000

2007/08 300,000

Required:

(a) Calculate the inheritance tax liabilities arising during Betty’s lifetime on her lifetime gifts and state the due date for any tax payments. (5 marks)

(b) Calculate any additional inheritance tax liabilities arising on the lifetime gifts as a consequence of Betty’s death, stating the due date for any tax payments and who will suffer any tax arising. (5 marks)

(c) Calculate the inheritance tax liability arising on Betty’s death estate, stating the due date for payment and who will pay the tax to HMRC. (5 marks)

(Total: 15 marks)

5 (a) Lucinda commenced in self‐employment on 1 July 2008, preparing accounts to 31 May. Her trading profits for the first two periods of trading were as follows:

£ Eleven‐month period ended 31 May 2009 46,200 Year ended 31 May 2010 63,360

Required:

Calculate the amount of trading profits that will have been assessed on Lucinda for the tax years 2008/09, 2009/10 and 2010/11.

Your answer should show the amount of overlap profits. (5 marks)



(b) Keith and Jones commenced in partnership on 1 January 2007, preparing accounts to 5 April. Keith resigned as a partner on 31 December 2010, and Gordon joined as a partner on 1 January 2011.

The partnership’s trading profit for the year ended 5 April 2011 is 117,000.

Profits were shared as follows:

(1) Jones was paid an annual salary of £7,800.

(2) Interest was paid at the rate of 10% on the partners’ capital accounts, the balances on which were:

£ Keith 52,000 Jones 91,000 Gordon (from 1 January 2011) 26,000

Keith’s capital account was repaid to him on 31 December 2010.

(3) The balance of profits was shared as follows: Keith Jones Gordon % % %

6 April 2010 to 31 December 2010 60 40 n/a 1 January 2011 to 5 April 2011 n/a 70 30

Required:

Calculate the trading income assessments of Keith, Jones and Gordon for the tax year 2010/11. (5 marks)

(c) Sean ceased trading on 30 November 2010. He had commenced in self‐employment on 1 October 2004, initially preparing accounts to 30 September.

His overlap profits for the period 1 October 2004 to 5 April 2005 were £4,950.

Sean subsequently changed his accounting date to 30 June by preparing accounts for the nine‐month period to 30 June 2009.

His trading profits for the final four periods of trading were as follows: £

Year ended 30 September 2008 39,600 Nine‐month period ended 30 June 2009 25,740 Year ended 30 June 2010 31,680 Five‐month period ended 30 November 2010 11,800

Required:

Calculate the amount of trading profits that will have been assessed on Sean for the tax years 2008/09, 2009/10 and 2010/11. (5 marks)

(Total: 15 marks)

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F6 - Revision Mock - D11 - Questions