ACCA F6 Revision Mock - Questions J11

ACCA REVISION MOCK

Taxation (United Kingdom) June 2011

Time allowed Reading and planning: 15 minutes Writing: 3 hours ALL FIVE questions are compulsory and MUST be attempted. Rates of tax and tables are printed 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

Kaplan Publishing/Kaplan Financial

P A PER F6 ( UK ) : TAXATION (FA2010)

2 KAPLAN PU BL ISHING

© Kaplan Financial Limited, 2011

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TAX RATES AND ALLOWA NCES

KAPLAN PU BL ISH ING 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 ALLOWA NCES

KAPLAN PU BL ISH ING 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 : QU ES TI ON S

KAPLAN PUBL ISHI NG 7

ALL FIVE questions are compulsory and MUST be attempted

1 SONIA SILVA

On 31 August 2010, Sonia Silva who is 32 years old ceased trading as an architect. She had been self-employed since 6 April 2003, and had always prepared her accounts to 5 April.

On 1 September 2010 Sonia commenced employment as the manager of Rock plc, a national chain of estate agents.

The following information is available for 2010/11:

Self-employment

(1) Sonia has adjusted trading profits of £56,050 for the five month period to 31 August 2010. This figure is before taking account of capital allowances.

Sonia has no unrelieved overlap profits.

(2) The tax written down values for capital allowances purposes at 6 April 2010 are as follows:

£ General pool Expensive motor car (used by Sonia) Expensive motor car (used by her assistant)

55,000 22,600 12,000

The expensive motor car used by Sonia has 60% business use. The expensive motor car used by her assistant has 90% business use.

(3) On 31 July 2010, Sonia purchased office furniture for £11,200. On 31 August 2010, all of the items included in the general pool were sold for £74,470, no item being sold for more than its original cost. The expensive car used by her assistant was sold for £13,000. On the cessation of trading Sonia personally retained the expensive motor car used by her. Its value on 31 August 2010 was £19,500.

Employment

(1) Sonia is paid a salary of £5,750 per month by Rock plc, from which income tax of £1,150 per month has been deducted under PAYE.

(2) During the period from 1 September 2010 to 5 April 2011, Sonia was provided with a petrol powered company car. Rock Plc had purchased this car for £20,990. The motor car has a list price of £22,500 and an official CO2 emission rate of 188 g/km. Sonia also paid Rock Plc £10 per month for the private use of the car and £8 per month for private fuel consumed. The actual cost of private fuel consumed was £400.

(3) On 1 September 2010, Rock plc provided Sonia with an interest free loan of £4,500 and a mobile telephone costing £500. The company paid for all business and private telephone calls.

(4) Rock Plc has also provided Sonia with a free parking space for her company car near their offices at a cost of £2,000 each year.

(5) On 1 January 2011, Rock plc provided Sonia with a new computer costing £2,900. She uses the computer at home for personal purposes.

Property income

(1) Sonia has always let out a spare furnished room in her main residence from 2005. She receives rent of £375 per month and incurs allowable expenditure of £195 for the year in respect of that room. Sonia always computes the taxable income from the furnished room in the most favourable manner.



Other information

(1) During 2010/11 Sonia received dividends of £12,600 interest of £495 from an individual savings account (ISA) and interest of £3,353 from a National Savings and Investments bank easy access savings account (EASA). These are the actual cash amounts received.

(2) Sonia received a premium bond prize of £100 on 14 February 2011, her birthday.

(3) Sonia paid £21,120 (gross) in to her personal pension scheme during 2010/11 and also made a gift aid donation of £400 (net) to a national charity during 2010/11.

Required

(a) Calculate Sonia’s trading income assessment for 2010/11. (4 marks)

(b) Calculate Alison’s income tax payable for 2010/11. (21 marks)

(Total: 25 marks)

2 TOMTOM LTD

(a) Tomtom Ltd is a UK resident company that manufactures in-car satellite navigation systems. It has been trading since 1 April 2001 having prepared accounts each year to 31 March.

The company’s summarised income statement for the year ended 31 March 2011 is as follows: £ £ Gross profit 886,252 Operating expenses: Irrecoverable debts (Note 1) 2,740 Depreciation 120,256 Professional fees (Note 2) 24,048 Gifts and donations (Note 3) 5,100 Rent and rates (Note 4) 134,400 Other expenses (Note 5) 208,576 ––––––– (495,120) ––––––– Operating profit 391,132 Income from investments: Bank interest (Note 6) 19,920 Profit on disposal of building (Note 7) 200,000 ––––––– 611,052 Interest payable (Note 8) (144,000) ––––––– Profit before taxation 467,052 ––––––– Note 1 – Irrecoverable debts

Irrecoverable debts are as follows: £ Trade debts recovered (written off in previous years) (2,960) Increase in allowance for trade debtors 2,700 Loan to a customer written off 3,000 ––––– 2,740 –––––



Note 2 – Professional fees Professional fees are as follows: £ Accountancy and audit fee 11,328 Legal fees in connection with: – the issue of share capital

11,040

– setting up a new 15-year property lease 1,680 –––––– 24,048 ––––––

Note 3 – Gifts and donations

Gifts and donations are as follows:

£ Gifts to customers – Car sun visors costing £28 each, displaying Tomtom Ltd’s

logo

2,400 – Hampers of food costing £100 each 1,100 Donation to national charity (not made under the Gift Aid scheme)

1,600

––––– 5,100 ––––– Note 4 – Rent and rates

Rent and rates includes a premium of £80,000 that was paid on 1 April 2009 for the grant of a new 15 year lease on an office building.

Note 5 – Other expenses

Other expenses include £10,108 for entertaining customers and £6,142 for entertaining employees. The remaining expenses are all allowable.

Note 6 – Bank interest received

The bank deposits are held for non-trading purposes. Interest of £16,000 was received on 30 September 2009 and £3,920 on 31 March 2010.

Note 7 – Buildings

On 1 January 2005, Tomtom Ltd had purchased for £150,000 a new factory which qualified for industrial buildings allowance. It was brought into use immediately. The factory was sold on 1 January 2011 for £350,000.

Assume the indexation allowance from January 2005 to January 2011 is £22,050. An appropriate claim to minimise the chargeable gain is made.

On 1 September 2010, Tomtom Ltd bought for £450,000 an office building which does not qualify for industrial buildings allowance.

Note 8 – Interest payable

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

Note 9 – Plant and machinery

On 1 April 2010 the tax written down values of plant and machinery were: £ General pool 149,300 Expensive car 13,500



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

Cost/(proceeds) £ 5 May 2010 Purchased machinery 90,260 22 June 2010 Purchased a computer 10,140 11 September 2010 Purchased a motor car 14,100 15 October 2010 Sold equipment (15,220) 12 December 2010 Sold expensive car (5,500)

The motor car purchased on 11 September 2010 has a CO2 emission rate of 106 grams per kilometre. The equipment sold on 15 October 2010 for £15,220 originally cost £20,400.

Note 10 – Other information

Tomtom Ltd has two associated companies. Neither of the associates has made any capital additions during the period.

Required:

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

Your computation should commence with the profit before taxation figure of £467,052, and should list all of the items referred to in Notes (1) to (8) indicating by the use of zero (0) any items that do not require adjustment. (14 marks)

(ii) Calculate Tomtom Ltd’s corporation tax liability for the year ended 31 March 2011. (6 marks)

Note that in answering parts (b) and (c) of the question you are not expected to take account of any of the information provided in part (a) above.

Prontaprint Ltd runs a printing business, and is registered for VAT. Because its annual taxable turnover is below £1,350,000, the company uses the annual accounting scheme so that it only has to prepare one VAT return each year. The annual VAT period is the year ended 31 December.

Year ended 31 December 2010

The total amount of VAT payable by Prontaprint Ltd for the year ended 31 December 2010 was £18,360.

Year ended 31 December 2011

The following information is available:

(1) Sales invoices totalling £450,000 were issued to VAT registered customers, of which £288,000 were for standard rated sales and £162,000 were for zero-rated sales.

(2) Purchase invoices totalling £81,000 were received from VAT registered suppliers, of which £68,400 were for standard rated purchases and £12,600 were for zero-rated purchases.

(3) Standard rated expenses amounted to £50,400. This includes £6,480 for entertaining customers.

(4) On 10 January 2011 Prontaprint Ltd purchased a motor car costing £33,120 for the use of its managing director. The manager director is provided with free petrol for private mileage, and the cost of this is included in the standard rated expenses in Note (3). The car has CO2 emissions of 210 g/km and the relevant annual scale charge is £1,760. Both figures are inclusive of VAT.



(5) During the year ended 31 December 2011 Prontaprint Ltd purchased machinery for £43,200, and sold office equipment for £14,400. Input VAT had been claimed when the office equipment was originally purchased.

(6) On 31 December 2011 Prontaprint Ltd wrote off £8,640 due from a customer as an irrecoverable debt. The debt was in respect of an invoice that was due for payment on 30 April 2011.

None of the above transactions took place before 4 January 2011. Unless stated otherwise all of the above figures are exclusive of VAT.

Required:

(b) Calculate the monthly payments on account of VAT that Prontaprint Ltd will have made in respect of the year ended 31 December 2011, and state in which months these will have been paid. (2 marks)

(c) (i) Calculate the total amount of VAT payable by Prontaprint Ltd for the year ended 31 December 2011. (6 marks)

(ii) Based on your answer to part (i) above, calculate the balancing payment that would have been paid with the annual VAT return, and state the date by which this return was due for submission. (2 marks)

Total: 30 marks)

3 JANET PLANET

Janet Planet, a UK resident individual, made the following disposals of assets in 2010/11:

26 April 2010:

13,000 ordinary shares in Crate Ltd sold for £94,600. Janet purchased these shares as follows:

26 May 1995 6,000 shares for £24,000

24 October 2003 5,000 shares for £27,500

22 March 2009 2,000 shares for £12,000

Janet has worked part-time for the company since May 1995 and the company has 200,000 ordinary shares in issue.

14 June 2010:

A painting for £142,000. Janet purchased the painting in May 1986 for £130,000.

18 July 2010:

An investment property for £80,000. Janet purchased the property in November 1989 for £100,000.

17 September 2010:

An office building for £280,000. Janet purchased the office building in May 1986 for £80,000 and used them for the purposes of her part-time unincorporated business.

Since September 2010 Janet has operated the business from her home.

14 November 2010:

Two apartments for £140,000. These had been part of an apartment block which Janet purchased for investment purposes. The whole block had cost £250,000 in August 1997 and in November 2010 the remaining apartments had a market value of £320,000.

Janet has capital losses brought forward from 2009/10 of £28,600.

Janet’s taxable income for 2010/11 is £35,000.



Required:

Calculate the Janet’s capital gains tax liability for 2010/11, explain the availability of any Entrepreneurs’ relief and state the due date of payment. (15 marks)

4 BUCK STAR

You should assume that today’s date is 15 March 2011.

Buck Star is the managing director of, and 100% shareholder in, Frothy-Coffee Ltd.

For the tax year 2010/11 Buck will have director’s remuneration of £45,000 from Frothy-Coffee Ltd. On 25 March 2011 he wishes to withdraw a further £50,000 from the company, either as additional director’s remuneration (the gross remuneration will be £50,000) or as a dividend (the cash amount actually withdrawn will be £50,000).

Frothy-Coffee Ltd prepares its accounts to 31 March. The company’s total taxable profits for the year ended 31 March 2011 will be £250,000. This figure is after deducting the director’s remuneration of £45,000, but before taking account of the additional £50,000 to be withdrawn from the company.

Buck has no other income from any sources during 2010/11.

Required:

(a) Calculate the additional income tax liability and national insurance contributions that Buck will have for the tax year 2010/11 if he

(1) withdraws additional gross director’s remuneration of £50,000, or

(2) withdraws a net cash dividend of £50,000. (5 marks) (b) Calculate Frothy-Coffee Ltd’s national insurance contributions and corporation tax

liability for the year ended 31 March 2011 if the company

(1) pays additional gross director’s remuneration of £50,000, or

(2) pays a net cash dividend of £50,000. (4 marks)

(c) Based on your calculations in parts (a) and (b) above, advise Buck whether it will be beneficial to withdraw the £50,000 from Frothy-Coffee Ltd as additional director’s remuneration or as a dividend. (3 marks)

(d) Briefly explain the tax implications if, instead of Buck withdrawing £50,000 from Frothy-Coffee Ltd, the company were instead to make a contribution for the benefit of Buck of £50,000 into its HM Revenue & Customs’ approved occupational pension scheme on 25 March 2011. (3 marks)

(Total: 15 marks)

5 BARBARA BALL

Barbara Ball died on 27 February 2011. She is survived by her husband, John, and two adult children, Nina and Ella.

Barbara had made the following transfers in her lifetime:

6 May 2005 Gift of 16,000 quoted shares to her nephew. The shares were valued at £100,000.

8 June 2007 Gift of quoted shares to a trust for the benefit of her nephews and nieces. The shares were valued at £323,200. Barbara paid the IHT due.

17 July 2007 Gave cash of £20,000 to Nina on the occasion of her marriage.

26 August 2007 Gave Ella 5,000 ordinary shares in Beta Ltd, an investment company. Before the transfer Barbara held 12,000 shares of the 20,000 shares in issue. HMRC has agreed the following values for the shares:



Holding Value per share £ 75% or more 10 More than 50% but less than 75% 8 Exactly 50% 7 More than 25% but less than 50% 6 Exactly 25% 4 Less than 25% 3

Required:

Calculate the inheritance tax payable during Barbara’s lifetime and as a result of her death in respect of the lifetime gifts.

State when the tax is due and by whom.

The nil rate bands for earlier years are as follows:

2005/06 £275,000

2007/08 £300,000 (15 marks)

ACCA F6 Revision Mock - Questions J11

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