Advanced Taxation - Accounting Technicians Ireland · be asked and both students and teachers alike...

Advanced Taxation Northern Ireland

Sample Paper 1

Questions & Suggested Solutions

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NOTES TO USERS ABOUT SAMPLE PAPERS

Sample papers are published by Accounting Technicians Ireland. They are intended to provide guidance

to students and their teachers regarding the style and type of question, and their suggested solutions, in

our examinations. They are not intended to provide an exhaustive list of all possible questions that may

be asked and both students and teachers alike are reminded to consult our published syllabus (see

www.AccountingTechniciansIreland.ie) for a comprehensive list of examinable topics.

There are often many possible approaches to the solution of questions in professional examinations. It

should not be assumed that the approach adopted in these solutions is the only correct approach,

particularly with discursive answers. Alternative answers will be marked on their own merits.

This publication is copyright 2017 and may not be reproduced without permission of Accounting

Technicians Ireland.

© Accounting Technicians Ireland, 2017.

http://www.accountingtechniciansireland.ie/

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INSTRUCTIONS TO CANDIDATES

PLEASE READ CAREFULLY

For candidates answering in accordance with the law and practice of the Northern Ireland.

In this examination paper the £ symbol may be understood and used by candidates in Northern Ireland to

indicate the UK pound sterling.

Candidates should answer the paper in accordance with the appropriate provisions up to and including the

Finance Act 2017. The provisions of the Finance Act 2018 should be ignored.

Allowances and rates of taxation, to be used by candidates, are set out in a separate booklet supplied with

the examination paper.

Answer ALL THREE QUESTIONS in Section A, and ANY TWO of the FOUR questions in Section B.

If more than TWO questions are answered in Section B, then only the first three questions, in the order

filed, will be corrected.

Candidates should allocate their time carefully.

All workings should be shown.

All figures should be labeled as appropriate e.g. £s, units etc.

Answers should be illustrated with examples, where appropriate.

Question 1 begins on Page 2 overleaf.

The following inserts are enclosed with the paper:

Tax Reference Material

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Section A

Answer ALL THREE questions (Compulsory) in this Section

QUESTION 1 (Compulsory)

Edward was born on 29th

September 1961 and has been in practice for many years as a dentist. He is

married to Simone and the couple have two small children ages three and five. The following is

Edward’s Income Statement for the year ended 31st December 2017:

Notes £ £

Income:

Prescription income ................................................. 863,518

Shop income ............................................................ 212,118

1,075,636

Expenditure incurred

Purchases .................................................................... 801,055

Staff pension costs ...................................................... 2,000

Wages and salaries .................................................... (1) 99,670

Premises costs ............................................................. (2) 7,100

Motor expenses ........................................................... (3) 27,520

Repairs – computer maintenance ................................ 500

Legal and professional fees ........................................ (4) 2,720

General administrative expenses ................................ (5) 2,482

Other expenses (course fees) ...................................... 250

Depreciation – fixtures & equipment ........................ (6) 719

Depreciation – motor vehicle .................................... 7,200

951,216

Surplus of income over expenditure ........................... 124,420

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QUESTION 1 (Cont’d)

NOTES

(1) Wages and salaries are comprised of:

£

Shop assistants .......................................... 85,420

Locum costs .............................................. 7,650

Simone (secretarial assistance) ................. 6,600

99,670

(2) The dental laboratory is attached to Edward’s house. Premises costs are made up as follows:

£ Heat and light .................................... 3,900

Insurance (buildings & contents) ........ 1,100

Rates ................................................... 900

Cleaning .............................................. 1,200

7,100

67% of these costs have been agreed with HMRC as relating to Edward’s private house and the other

33% to business.

(3) Motor expenses are comprised of the following:

£

Fuel costs ........................................... 1,395

Insurance/tax ........................................ 830

Repairs & servicing .............................. 769

HP interest ............................................ 1,426

Payment for new car ............................ 23,100

27,520

The new car with CO2 emissions of 120 g/km cost £28,800 on 1st January 2017.The remainder of

this cost was financed by Edward trading in his old car. The business element of Edward’s motor

expenses has been agreed with HMRC as being 25%. Edward’s tax written down value at 31st

December 2016 on his previous car was £2,500.

(4) Legal and professional fees are comprised of the following:

£

Accountant’s fees ...................................... 2,000

Stock taker’s fees ...................................... 720

2,720

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(4) General administrative expenses are comprised of the following:

£

Telephone bills .......................................... 1,465

Bank charges ............................................. 867

New Fax machine (purchased 28 February 2017) 150

2,482

85% 0f the telephone bills are for private use.

(5) The tax written down value of fixture and equipment at 31/12/2016 was £1,250.

Requirement

In respect of the year ended 31 December 2017

(a) Prepare capital allowances computation for fixtures & equipment and motor vehicles assuming

that where available all allowances are claimed.

7 Marks

(b) Prepare the Adjusted Profits Computation showing clearly the make up of any adjustments

required to be made to trading profits.

9 Marks

(c) State the date by which Edward is due to submit his 2017/18 tax return and pay any balance of tax

due.

4 Marks

Total 20 Marks

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(1) Gary Hamilton has recently commenced business as a self-employed retailer of adults and children’s

clothing.

Requirement

Write a letter to Mr. Hamilton dealing briefly with each of the following questions which he has raised

with you:

(a) Should he register for VAT? 2 Marks

(b) Will he have any problems recovering his input tax? 3 Marks

(c) What records should he keep? 2 Marks

(d) What method of VAT accounting will give him the best cash-flow and administration benefits,

comparing cash accounting to the normal invoice method of accounting for VAT? 3 Marks

(2) Tina Browne owns a boutique in Coleraine, selling both adult and children’s clothing. All

purchases arise from UK suppliers. Tina accounts for VAT on a cash receipts basis. She provides

you with the following information in respect of the quarter ended 31st March 2018:

Total Adult Children

£ £ £

Cash receipts from

customers

78,000 52,000 26,000

Cheque payments to

suppliers

36,000 27,000 9,000

Invoices received

from suppliers

40,000 32,000 8,000

Cash expenses paid

petty cash

2,900

Overheads paid by

cheque

15,000

Wages and salaries

paid by cheque

11,500

Deposit paid on new

cash register

1,630

NOTES

(1) VAT has been paid on all petty cash expenses and on all overheads paid by cheque except for

insurance costs of £1,690. The new cash register is due to be delivered with the invoice in April

2018.

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Requirement

(a) Calculate the VAT liability payable by Tina Browne for the quarter ended 31st March 2018. Show

clearly how you can calculate both the output tax and any input tax credits.

8 Marks

(b) Calculate the VAT payable for the quarter ended 31st March 2018.

2 Marks

Total 20 Marks


Salvo Rossini who was born on 4 July 1967 has a number of properties from which he derived a rental

income:

(1) Residential house at 123 Greenacres Lane, Carryduff.

(2) Apartment at 45 The Quay, Lisburn.

This property was purchased on 1st May 2017, for £425,000. He let the property for £800 a month,

commencing on the 1st August 2017.

Salvo advised you that the costs associated with letting the properties for the year ended 5th

April 2018

are:

Residential

House Apartment

Notes £ £

Receipts:

Rents received 15,000 6,400

Deposit received (i) 800

Payments:

Insurance (ii) 600 425

Repairs and renewals (iii) 4,080

Rates 1,700 930

Bank repayments (iv) 6,180 8,580

Collection expenses (v) 1,500 640

Advertising (vi) 125

Management fees (vii) 320

Furniture (viii) 5,875

Ground Rents 36

(i) This is a security deposit which is refundable at the end of the lease.

(ii) These are the costs for the 12 months ended 5th

April 2018.

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(iii) The costs comprised:

£

New slates to roof .............. 970

Replacement furnishings .............. 390

Installation of oil fired central heating .............. 2,720

4,080

(iv) These are the bank repayments on the bank loans to acquire the properties. The amounts represent

payments made for the 12 months ended 5th

April 2018. The interest element included in these

payments was:

House ................................................................... £3,000

Apartment ............................................................ £8,580

(v) Salvo Rossini engages a firm of estate agents to collect the rents on his behalf.

(vi) Advertising for a tenant.

(vii) Fee paid to the apartment management company to care for the apartment block for the year.

(viii) Salvo spent £5,875 on kitchen and bedroom furniture and equipment prior to first letting.

Salvo Rossini had the following other income for the tax year ended 5 April 2018:

Income: £

Employment income (1) 32,120

Dividends from UK Trading company (2) 13,500

Bank deposit interest- standard deposit account (3) 1,600

(1) The employment income from Salvo’s employment with Ferris Foods Limited. The P60 details

for the tax year ended 5th

April 2018 show:

£

Gross salary .......................................................... £32,120

PAYE ................................................................... £4,536

(2) Dividends from Ulster Bank Plc £13,500.

(3) Deposit interest income arose on an ordinary bank account with the Eastern Link Building

Society. The amount received was £1,600.

Requirement

In respect of the tax year ended 5th

April 2018: -

(a) Compute the net rental income of Salvo Rossini.

(b) Calculate any balance of Income Tax payable or repayable by/to Salvo Rossini.

Total 20 Marks

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Section B

Answer ANY TWO of the FOUR questions in Section B

QUESTION 4 (Optional)

(1) BLUE MOON Ltd., a UK registered trading company, which had previously made up accounts to

30th June, changed its year-end to 31st March. BLUE MOON Ltd., is a close company with no

other associated companies for taxation purposes. Its results for the three accounting periods

ended 31st March 2018 were as follows.

12 Months Ended

30th

June 2016

£

9 Months Ended

31st March 2017

£

12 Months Ended

31st March 2018

£

Trading Profit/(loss) 101,700 89,070 (221,880)

Interest Income 2,500 4,500 -

Chargeable Gains - 13,000 10,000

For the accounting period ended 31st March 2019 the company is predicting a trading profit of

£30,000, Interest income of £5,000 and chargeable gains of £35,000.

Requirement

Compute the taxable profits for each accounting period for BLUE MOON Ltd., on the assumption

that the company makes all available loss relief claims so as to obtain relief against the earliest

possible profits. (Candidates are required to show clearly how losses are utilised by maintenance

of a ‘loss memorandum’ account.). Quantify the predicted amount of any unutilised trading loss at

31st March 2018 and state how this can be utilised in the future, and assuming BLUE MOON Ltd.,

predictions are correct for the accounting period ending 31st March 2019, the loss (if any) that will

be available to carry forward against future profits.

Total 20 Marks

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QUESTION 5

(a) On 5th

July 2017, Pat Jervis sold a house for £850,000. This house had been rented to tenants ever

since its acquisition on 5th

July 2007. The house had been acquired along with 109 acres of land at

a total cost of £565,000. Pat had incurred allowable costs of £8,000 on the sale of the house. The

109 acres of land which Pat retained was valued at £1,000,000 on 5th

July 2017. Pat is a higher

rate taxpayer and has not made any other capital disposals in 2017/2018.

Requirement

For the tax year 2017/2018 how much Capital Gains tax is payable by Pat Jervis?

5 Marks

(b) On 29th

September 2017, Hugh Baillie sold an antique vase for £7,900. The vase had been

purchased in January 2011 for £2,000. He has taxable income after all allowable deductions and

personal allowance of £20,000.

Requirement

What is Hugh Baillie chargeable gain (ignoring annual exemption) on the sale of this antique vase?

5 Marks

(c) Taylor Smyth has been in business for ten years. She purchased her factory building for £360,000

in April 2005 at which time she commenced trading in the manufacture of air conditioning

equipment for offices. In October 2017 she ceased trading and sold the factory on 31st October

2017 for £1,000,000. Taylor incurred solicitor’s costs in relation to the sale of £2,650, estate agent

fees of £2,950 and tax panning fees of £3,000. Taylor also had capital losses of £151,000 brought

forward at 6 April 2017 from a shareholding in a private limited company that failed. These losses

have been agreed with HM Revenue & Customs. Taylor has not made any other capital disposals

in 2017/18.

Requirement

What is Taylor Smyth’s capital gains tax liability in respect of the sale of the factory?

5 Marks (d) On 28

th February 2018 Shane Young made a gift of a painting worth £190,000 to his daughter

Sinead. Shane had acquired this painting at an auction for £5,000 on 2nd

July 1981. The value of

the painting at 31st March 1982 was £18,000. On 28

th February 2007 Shane spent £6,000 on

restoration costs in respect of this painting. Shane Young is a higher rate taxpayer and has not

made any other capital disposals in 2017/18.

Requirement

What is Shane Young’s liability to capital gains tax in respect of the gift of this painting?

5 Marks

Total 20 Marks

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QUESTION 6 (MULTIPLE CHOICE)

The following multiple choice question consists of TEN parts, each of which is followed by FOUR

possible answers. There is ONLY ONE right answer in each part.

Requirement

Indicate the right answer to each of the following TEN parts. 20 Marks

N. B. Each part carries 2 marks. Candidates should answer this question by ticking the appropriate

boxes on the special green answer sheet which is supplied with the examination paper.

[1] Zack’s employer provides him with a company car bought new on 6th

June 2017. The car’s CO2

figure is 210 grams per kilometre. The car’s list price is £18,450 and it is fuelled by diesel. The

benefit-in-kind for 2017/18 on this car is:

(a) £6,826.50

(b) £5,688.75

(c) £6,150.00

(d) £7,380.00

[2] On 31st January 2018 Yvonne had an outstanding balancing payment on her 2016/17 income tax

liability of £4,320. Yvonne’s 2016/17 tax return was submitted on 31st January 2018; however,

this tax was paid late on 13th

March 2018. The amount of surcharge on late payment of this tax

was:-

(a) £100

(b) £216

(c) £316

(d) £532

[3] Vincent is a single person born 10/11/1944 and in the tax year ended 5th April 2018, he received

income from retirement pensions of £6,545. Vincent also received bank deposit interest of £1,500

and dividends of £351. No tax has been paid on the pension income. Vincent’s income tax

repayable for 2017/18 is:-

(a) £2,604.00

(b) £375.00

(c) £NIL

(d) £414.00

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[4] Ursula born 23/06/57 receives the following in 2017/18-

Child benefit £1,575

Dividends from a UK close company £9,000

Interest on National Savings Income Bonds £5,200

Maintenance payments from former spouse £4,600

Interest on overpaid Income Tax from 2016/17 £ 139

Ursula’s gross taxable income for the tax year 2017/18 is:

(a) £10,000

(b) £11,575

(c) £14,200

(d) £21,514

[5] Timothy operates a small business based in Ballymena, Co. Antrim. Timothy can apply to join the

Flat Rate Scheme for small businesses provided there are reasonable grounds for believing that his

total business income for the next year will be: -

(a) £100,000 or less exclusive of VAT

(b) £100,000 or less inclusive of VAT

(c) £150,000 or less exclusive of VAT

(d) £150,000 or less inclusive of VAT

[6] Which of the following is not a zero rated supply for VAT purposes: -

(a) supply of children’s footwear

(b) supply of cold unprocessed food by a supermarket

(c) export of goods to a foreign country outside the EC.

(d) provision of insurance

[7] Which of the following expenses provided by employer to an employee earning £8,500 pa is an

assessable BIK under the taxation of earnings from employment: -

(a) business travel expenses reimbursed

(b) contribution to the employees personal pension plan

(c) relocation expenses of £6,000 paid on moving office to another part of the country

(d) private medical insurance

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[8] Simon aged 35, purchased a 100 acre estate in May 2007 for £1 million and incurred legal and

other allowable costs of £50,000. In 1st October 2017, he sold 10 acres of the estate for £700,000.

The costs of this sale were £30,000. The value of the remaining land was £3 million. Simon’s

capital gain (before any annual exemption due), on this sale of this non-business asset is: -

(a) £282,811

(b) £471,351

(c) £480,811

(d) £501,351

[9] RUPEE Ltd. makes a trading loss in the year to 31st December 2017. RUPEE Ltd. can claim loss

relief against the total profits make in the year ended 31st December 2017 on the following basis:

(a) the claim can be limited in amount so as to leave sufficient profits in charge to cover non

trade charges

(b) the claim can be limited so as to leave sufficient profits to cover trade charge

(c) the claim can be limited so as to leave sufficient profits in charge to cover all charges

(d) the claim cannot be limited so as to leave profits in charge to cover any charges incurred by

the company.

[10] PUGWASH Ltd. in the year ended 31st March 2018 had profits chargeable to corporation tax

totaling £2 million. The company pays its corporation tax liability under the quarterly installment

payment provisions. The first installment of corporation tax will be due on:-

(a) 14th

October 2017

(b) 14th

January 2018

(c) 14th

October 2018

(d) 14th

January 2019

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QUESTION 7

Sammy Silkstone is a client of your firm, and as such you prepare both personal tax returns (Form SA)

for her and also prepare the Corporation tax return for the company she owns – Silky Fabrics Ltd. One of

Sammy’s friends has recently been the subject of an enquiry into their tax affairs by HM Revenue &

Customs and she is now expressing concern that either her or Silky Fabrics Ltd’s recent returns could

also be subject to an enquiry.

Sammy Silkstone has asked you to explain the rules in respect of such enquiries to her.

Requirement

Write a letter to Sammy Silkstone, in which you set out the tax position in respect of an enquiry carried

out by HM Revenue & Customs. This letter should cover the following areas:

(a) The scope of enquiries.

(b) The time limit for enquiries.

(c) HM Revenue & Customs entitlement and power to call for documents

(d) The amendment of returns during enquiries

(e) The completion of enquiries

(f) The right of appeal

(g) Payment of tax, interest and penalties

Total 20 Marks

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Advanced Taxation (Northern Ireland)

Sample Paper 1 – Suggested Solutions

Solution 1

EDWARD

Main Pool

Single Asset

Pool Pte Capital

use Allowances

a) Capital allowances computation 75%

£ £ £ £ £

WDV B/fwd 1,250 2,500

Disposals (Trade in Allowance) -

-

(5,700 )

1,250

-

(3,200 )

Balancing charge 3,200 2,400 - 800 Balancing

- charge

Additions not qualifying for FYA

Car CO2 emissions 120g/km

28,800

Additions qualifying for AIA (28/02/16) 150

AIA

-

150 150

1,250 28,800

WDA @ 18%

Note restricted private use on motor vehicle

(225) (5,184) 3,888 1,521

Capital allowances claimed 1,671

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b) Adjusted Profits computation

£ £

Surplus income per accounts 124,420

Add

Premises costs 67% 4,757

Motor expenses: Payment for new car 23,100

Motor expenses (27,520-23,100 x75%) 3,315

General administration fees – New fax machine 150

General administration fees – telephone 85% 1,245

Depreciation - fixtures & equipment 719

Depreciation - motor vehicle 7,200

______

40,486

Deduct 164,906

Capital allowances (1,671)

Add Balancing charge

800

Adjusted profit

£164,035

c) Date for online submission of return to HM Revenue& Customs is 31st January 2019 (following end of tax year on 5th April) unless Edward is expecting

the Revenue to compute his tax liability in which case the return needs to be submitted to them by 31st October 2018.

Any outstanding/balancing payment must also be made by 31st January 2019 with two payments on account each

being 50% of the previous year’s total tax liability having been due in two payments on 31 January during the tax year ie. 31 January 2018 and 31 July

2018.

Solution 2

Gary Hamilton

8th October 2017

Mr G Hamilton

31 Oval Place

BELFAST BT4 9AB

Dear Mr Hamilton

In response to the questions raised at our meeting in connection with VAT , I have dealt with these below: -

(a) Should you register for VAT?

You supply both adults and children’s clothing. If your turnover from the retail of these exceeds £85,000 in the next 12 month period (or any consecutive

12 month period) then registration for VAT will be compulsory. You will then have to account for VAT on all your sales. VAT on the sale of adults clothing

will be at the standard rate of 20% whereas VAT on children’s clothing , whilst still counting as a vatable supply is zero rated.

(b) Will you be able to recover your input tax?

Input tax is the VAT you are charged by other VAT registered traders on the supply of goods or services to you. Once registered you will be able to recover this

VAT on all goods or services incurred wholly or exclusively for the purposes of the business except where this is not permitted under the VAT legislation.

Examples of non-recoverable input tax are the VAT incurred on entertaining, goods taken for your own use, or on the purchase of a motor car.

This will normally be recovered in the first instance by deduction against the output tax you will be due to pay over to HM Revenue and Customs on your sales.

In the event of you incurring substantial start up costs eg. building repairs or improvements which are subject to VAT, you might decide that it is to your

advantage to register for VAT at an earlier date in order to recover this input tax.

(c ) What records should you keep?

You should retain copies of all VAT invoices sent to you in connection with goods or services purchased for the business along with a record of all purchases

incurred showing the date of purchase, the suppliers name and VAT number and the amounts involved both net of VAT and the VAT incurred. As a retailer you

should also keep sales invoices and or daily till rolls showing the date of sale, the type of goods sold and the gross amount of goods sold (inclusive of VAT).

Other business records including your cash and bank records of the business, bank statements and hire purchase and leasing records also need to be retained.

The normal basis for accounting for VAT is likely to be the most suitable for your business. This will mean that VAT will be payable in the period that you

generate your sales invoice and input VAT recoverable in the period in which you receive the suppliers invoice.

As a retailer the cash accounting method for VAT would not normally be suitable because under this method you will be paying over output VAT immediately

as most of your sales are cash rather than credit sales but you will not be able to recover input VAT on purchases until after the VAT period ending (usually the

quarter ending) whenever you pay the suppliers invoice.

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Solution 2 (CONTINUED)

(2) Tina Browne

(a) VAT for the quarter ended 31st March 2018: Cash Accounting

Output VAT

Gross Vat(1/6) Net

CASH RECEIPTS £ £ £

Adult’s clothing 52,000 8,667 43,333

Children’s clothing 26,000 - 26,000

78,000 8,667 69,333

Input VAT CASH/CHEQUE PAYMENTS

Purchases per cheque payments

Adults clothing 27,000 4,500 22,500

Children’s clothing 9,000 - 9,000

Cash register (deposit paid but no VAT invoice) - - -

Vatable overheads (15,000-1,690) 13,310 2,218 11,092

Cash expenses – Vatable 2,900 483 2,417

52,210 7,201 45,009

b) VAT payable Q/E 31.3.2018 = Output Tax £8,667 – Input Tax £7,201 = £1,466

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Solution 3

Salvo Rossini

(1) Net Rental Income Total House Apartment

£ £ £

Income received 21,400 15,000 6,400

Deduct - - -

Insurance 1,025 600 425

Repairs & renewals (970 + 390) 1,360 1,360 -

Rates 2,630 1,700 930

Bank interest Repayments (75%) 8,685 2,250 6,435

Collection expenses 2,140 1,500 640

Advertising 125 125

Management company fees 320 320

Ground Rents 36 36

Net (loss)/surplus for period 5,079 7,590 (2,511)

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Solution 3 (Cont’d)

(2) Computation of the balance of income tax payable Total non-savings dividend

income income savings inc income

Income £ £ £ £

Employment income 32,120 32,120

Rental income 5,079 5,079

Bank deposit interest 1,600 1,600

Dividends 13,500 13,500

52,299 37,199 1,600 13,500

Deduct

Personal allowance (11,500)

- (11,500)

40,799 25,699 1,600 13,500

Tax payable thereon

£

at basic rate 25,699 @ 20%

5,139.80

at savings rate (PSA) 500@ 0% savings rate 1,100 @ 20% 220 .00

at dividend rate (DA) 5,000 @ 0%

dividends 1,201 @ 7.5% dividends 7,299 @ 32.5%

-

90.07 2,372.18

Less Tax credit PAYE

7,822.05

(4,536.00)

Less Tax reducer (w1) 2,895 * 0.20 (579.00)

£2,707.05

W1 Tax reducer @ 20% lower of:

Finance costs disallowed (11,580 * 0.25) 2,895 Property profits 5,079

Adjusted total income (40,799-1,600-13,500) 25,699

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Solution 4

Blue Moon Ltd

Computation of profits chargeable to corporation tax (Predicted)

y/e p/e y/e y/e

30/06/2016 31/03/2017 31/03/2018 31/03/2019

£ £ £ £

Trading ProfitsSch D Case 1 101,700 89,070 - 30,000

less S393 (1) LOSS RELIEF

-

(30,000)

101,700 89,070 - -

Interest Income 2,500 4,500 5,000

Chargeable gains - 13,000 10,000 35,000

104,200 106,570 10,000 40,000

less S393 A (1)

-

(10,000 )

c/back against 9 months ended 31/03/17 - (106,570 )

c/back against last 3 months of the previous AP

-

(26,050)

PCTCT 78,150 NIL NIL 40,000

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Solution 4

Loss memorandum

Loss y/e 31st March 2018 221,880

utilised against this year’s income ( 10,000)

211,880

utilised against 9 m/e 31/03/17

-

(106,570 )

105,310

utilised against 3 m/e 30/06/16 ( 104,200* 3/12) ( 26,050

79,260

predicted usage against y/e 31/03/19 (30,000)

Loss carry forward against future trade profits only 49,260

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Solution 5

a) Pat Jervis £

Sale of house 850,000

Deduct allowable costs on sale

-

(8,000 )

842,000

cost of asset sold - part disposal ( A/(A+B) )

(565000*850k/1,850k)

-

(259,595)

Gain 582,405

annual exemption - (11,300)

Gain 571,105

Capital Gains Tax payable 28%

£159,909

b) Hugh Baillie

Sale of antique vase 7,900

deduct cost - 2,000

Gain 5,900

but as this is a chattel this gain is restricted to:

£7,900 - £6,000 x 5/3 3,167

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c) Taylor Smyth

Sale of factory building 1,000,000

deduct allowable selling costs

solicitors fees (2,650 )

estate agents fees (2,950 )

( 5,600)

994,400

Deduct acquisition costs (360,000 )

Capital gain 634,400

less capital losses (151,000)

483,400

Annual exemption ( 11,300)

Gain subject to CGT 472,100

Gain will be charged at the Entrepreneurs’ Relief Rate of 10%

Note tax planning fees cannot be deducted.

d) Shane Young

Gift of painting 190,000

Value 31/03/82 (18,000 )

172,000

restoration costs ( 6,000)

Gain 166,000

Annual exemption (11,300 )

Gain subject to CGT 154,700

Capital Gains Tax payable

Capital Gain HR @ 20% £30,940

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Solution 6

Multiple Choice

Question Answer Workings

1 B 18,450 X 37% (max) X10/12

2 B 5% X £4,320

3 C Total income = £8,396 (gross) covered by allowances due

But no refund available

4 C £14,200 (Income from dividends & national savings income bonds)

5 C £150,000 or less exclusive of VAT

6 D Provision of insurance is exempt

7 D Private medical insurance provision is a B-I-K

8 B 700,000-30,000=£670,000 - (1,050,000 X700,000/3,700,000)

9 D The loss relief claim cannot be limited to cover charges

10 A First installment due on 14th day 6 months prior to y.e under Corp Tax installment

Solution 7

Sammy Silkstone

Company Director

Silky Fabrics Ltd

123 Linen Road

BELFAST

8 October 2017

Dear Mr Silkstone

HM Revenue & Customs Enquiries

Further to our recent discussions, I have set out below the key aspects in respect of HM Revenue &

Customs enquiries into the affairs of a taxpayer.

Scope of an enquiry

The enquiry could cover any aspect of either you personal return or the company's tax return. This

might cover anything included in the return or that should have been included therein. This also

includes any claims or elections that have been made.

Time Limit

Written notice of an enquiry into a tax return can be issued by HM Revenue & Customs during the

twelve months after filing date where the return was submitted on or before the due date.

If the return was submitted late then this period is extended to the quarter end day following the first

anniversary of the submission date. (31 January, 30 April, 31 July or 31 October)

In addition if an amendment is made to the return by either the taxpayer (yourself) or the company,

then this window is extended to the quarter day following the first anniversary of the date the amendment

was made.

If any enquiry is not made during this period the it becomes final, unless HM Revenue & Customs discover

fraudulent or negligent conduct in making the return (in which case a discovery assessment can be made)

Power to call for documents

Where an enquiry is underway, HM Inspector of Taxes may request from the taxpayer/company any

documents that it believes are necessary to enable it to discover whether a return is incorrect or incomplete.

A time limit will be given to comply with this request, although this will not be less than 30 days.

Copies of documents may be supplied rather than originals (although the originals can be requested for

inspection and HM Revenue & Customs can take copies of or make extracts from documents.

Amendment of a return during an enquiry

If a return is subject to an enquiry an amendment to the return can still be made by the taxpayer/company

provided that it is within the normal time limit of twelve months after the filing date. Although this does not

restrict the scope of the enquiry it may be taken into account when HM Revenue & Customs are arriving

at their conclusions.

Completion of enquiries

An enquiry is completed when HM Inspector of Taxes issues a closure notice. This informs the taxpayer

that the enquiry is complete and of the conclusions reached. It must therefore state either that no amendment

to the return is required or provide details of any amendments made. The notice takes effect when issued.

The taxpayer may apply to the General Commissioners for a direction requiring that a closure notice be

issued within a specified period.

Right of appeal

Appeals can be made within 30 days of the issue of a closure notice to the Commissioners against decisions

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contained therein. Such an appeal must be in writing and must specify the grounds for the appeal.

Payment of tax

Any additional tax found due should be paid as soon as possible. HM Revenue & Customs may amend the

has the right to appeal against this assessment and postpone payment of the tax,

If additional tax results from the enquiry interest will run from the normal due date,

If HM Revenue & Customs discover that the return was submitted negligently or fraudulently then a penalty up to a

maximum of the resulting tax underpaid may be levied. HM Revenue & Customs have the power to reduce penalties

and interest, although this is rarely done in the case of interest.

I trust this deals with any concerns you may have, but please do not hesitate to contact me with any questions

Yours sincerely

Ann Accountant

Advanced Taxation - Accounting Technicians Ireland · be asked and both students and teachers alike...

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