ATC-A acca books/READY/June 2017 F6 Exam... · Title: ATC-A.dot Author: Colin Channer Created Date:...

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Taxation (United Kingdom)

F6TX(UK)-MK1-X17-A

Answers & Marking Scheme

©2017 DeVry/Becker Educational Development Corp.

Mock One

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©2017 DeVry/Becker Educational Development Corp. All rights reserved. 2

Question Answer Mark Question Answer Mark

Section A Section B

1 B 2 16 C 2

2 C 2 17 D 2

3 C 2 18 B 2

4 B 2 19 D 2

5 C 2 20 D 2

6 D 2 21 C 2

7 A 2 22 D 2

8 B 2 23 C 2

9 A 2 24 C 2

10 A 2 25 D 2

11 D 2 26 B 2

12 D 2 27 C 2

13 C 2 28 D 2

14 A 2 29 B 2

15 A 2 30 A 2

Section A

Item Answer Justification

1 B Class 4 NIC for 2016–17 is £3,740 ((43,000 – 8,060 = 34,940 at 9%) + (72,750 –

43,000 = 29,750 at 2%)).

2 C £

Personal allowance 11,000

Restriction ½ × (108,500 – 2,400 – 100,000) (3,050)

––––––

Restricted personal allowance 7,950

––––––

3 C 8 months 4 months Total

£ £ £

Dakar Ltd losses (54,600 × 8/12) 36,400 27,900 64,300

Cairo Ltd profit (8:4) 58,000 29,000

Tutorial note: Group relief is restricted to the amount of loss in each period as

this is lower than the profit in the corresponding period.

4 B Profit share

£

6 April to 31 December 2016 (194,000 × 9/12 ×

1/3) 48,500

1 January to 5 April 2017 (194,000 × 3/12 × ½) 24,250

–––––––

72,750

–––––––

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5 C The amount of premium which is taxed (as property income) is:

£

Gross premium 54,000

Less: Capital element (1/50 × Gross premium × (15 − 1)) (15,120)

––––––

Income element 38,880

––––––

Tutorial note: Alternative £54,000 × (50 – 14) ÷ 50 = £38,880.

6 D £

Gross income 21,000

Less: Personal allowance (11,000)

––––––

Taxable income 10,000

––––––

Tax thereon

5,000 (Dividend nil rate band) at 0%

5,000 at 7.5% 375

––––––

7 A Annual VAT:

£

Normal basis ((80,000 – 12,000) × 20%) 13,600

Flat rate scheme ((80,000 × 120

/100) × 13%) 12,480

––––––

Annual saving 1,120

––––––

Tutorial note: The fixed percentage is applied to the VAT inclusive turnover.

8 B Capital allowances

Main pool Allowances

£ £ £

WDV brought forward 10,000

Additions qualifying for AIA

Display units 15,100

Tiled flooring 0

––––––

15,100

AIA (100%) (15,100) 0 15,100

––––––

WDA – 18% (1,800) 1,800

––––––

WDV carried forward 8,200

–––––– ––––––

Total allowances 16,900

––––––

Tutorial note: Expenditure forming part of a building, such as tiled flooring, does

not qualify as plant. The display units are not treated as forming part of the shop

building and therefore qualify as plant.

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9 A For failure to take reasonable care the maximum penalty is 30% × £8,200 = £2,460.

As the company made unprompted disclosure (in the next tax return) the minimum

penalty is nil.

10 A £

Disposal proceeds 92,000

Cost 600,108£800,37700,52

700,52

(63,240)

––––––

Chargeable gain 28,760

Annual exempt amount (11,100)

––––––

Taxable gain 17,660

––––––

11 D £

Disposal proceeds 310,000

Cost 120,000

Enhancement expenditure 42,000

–––––– (162,000)

––––––––

148,000

Indexation (162,000 × 0.504) (81,648)

––––––––

Chargeable gain 66,352

––––––––

12 D The gift will be a potentially exempt transfer of £89,000 (£100,000 less the

marriage exemption of £5,000 and annual exemptions of £3,000 for 2016–17 and

2015–16).

13 C Maputo Ltd is included in the chargeable gains group as there is a 75% shareholding

at each level and an effective interest of 80% (80% × 100%). Niamey Ltd is not

included in the chargeable gains group as Maputo Ltd does not own at least 75% of

Niamey Ltd.

14 A Loss relief in the year to 31 March 2017 is £10,400 (£8,100 + £2,300) leaving no

taxable total profits.

Tutorial note: The qualifying charitable donations are unrelieved.

15 A A company is not required to make quarterly instalment payments in the first year

that it is large (unless profits exceed £10 million). Therefore, E-Commerce plc is

not required to make instalment payments for the year ended 31 March 2017 as it

was not a large company in the previous year (because profits of £1,360,000 were

less than £1,500,000).

The year ended 31 March 2018 will be the second year that E-Commerce plc is

large, and so will have to make quarterly instalment payments for that year.

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Section B

Item Answer Justification

16 C (500,000 – 325,000) × 20

/80 = £43,750

17 D (1,580,000 – 24,000 – 7,000) × 40% = £619,600

Tutorial note: No nil rate band is available as it is clearly already fully used.

18 B Transferred unused NRB is applied in stage 2 calculations of lifetime transfers.

However, no repayment of IHT can arise as a result of this or of taper relief.

19 D (2,100,000 – (325,000 × 1.2)) × 40% = £684,000

20 D IHT liabilities are generally due six months after the end of the month of transfer or

of death, except for tax on CLTs made up to 30 September in the tax year, which

are due 30 April following the end of the tax year.

21 C £

WDV b/f 14,700

Integral features (102,000 + 120,000) 222,000

Long-life asset 280,000

–––––––

502,000

Less: AIA (200,000)

––––––– 302,000

––––––

316,700

Disposal: Car (12,400)

––––––

304,300

WDA @ 8% (24,344)

––––––

WDV c/f 279,956

––––––

22 D £

WDV b/f 64,700

Lorry 46,900

Low CO2 car 16,300

–––––––

127,900

–––––––

WDA @ 18% (23,022)

23 C 25 years is the cut-off for long life assets; certain integral features are specifically

allowable.

24 C 39,000 – 24,000 = £15,000

25 D £9,200 is the lower of: 5/3 × (11,520 – 6,000) = £9,200

and (11,520 – 2,120) = £9,400

26 B 98,000 – ((3,000 ÷ 7,200) × (13,100 + 20,000)) = £84,208

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27 C 240,000 + (580,000 – 220,000) = £600,000

28 D (106,000 – 4,900 – 11,100) × 20% = £18,000

29 B CGT is not payable by instalments or payments on account (so (3) is incorrect).

Application of annual exempt amount is not known, but would be at lower effective

rate (i.e. less beneficial) if used on a gain eligible for entrepreneurs’ relief rather

than on an ineligible gain taxed at normal rates (so (4) is incorrect).

30 A Relief is not automatic; it must be claimed by the first anniversary of 31 January

following the tax year of disposal. One year of ownership is the relevant period to

qualify for entrepreneurs’ relief.

31 BARLOW LTD

(a) Default surcharge

The late submission of the VAT return for the 3 months ended 30 September 2014 will not

give rise to any penalties, but will initiate the default surcharge liability process. HM

Revenue and Customs will issue a surcharge liability notice for a period of 12 months

starting 1 October 2014 and penalties will arise in relation to late payments during that 12

months as follows:

(i) Return for 3 months ended 31 December 2014 – 2% × £37,030 = £741.

(ii) Return for 3 months ended 30 June 2015 – 5% × £3,910 = £196 but will probably

be waived as the penalty is under £400.

(iii) Return for 3 months ended 30 September 2015 – as no VAT is due, no penalty can

arise.

Late returns or late payments during the surcharge liability notice period all have the effect

of extending the surcharge period for 12 months from the end of the default period. Thus,

the late return for the 3 months ended 30 September 2015 will extend the surcharge

liability notice period until 30 September 2016. As there were no further late returns or

payments in this period, no further penalties arise and the process stops as at 30 September

2016.

(b) Errors in VAT return – 3 months ended 31 March 2017

If the net errors are less than either £10,000 or 1% of turnover (up to £50,000) the

corrections may be made in the next VAT return. Larger errors must be separately notified

to HM Revenue and Customs as soon as practicable.

The maximum additional penalty that can arise as result of an error is 100% of the VAT

lost due to the error.

However, the actual penalty imposed depends on the cause of the error and the behaviour

of the taxpayer. If the error is due to a genuine mistake no penalty will be levied at all. If

the cause is the taxpayer’s carelessness or a deliberate understatement then higher penalties

can be imposed, with the highest penalty applying if the taxpayer has attempted to conceal

a deliberate understatement. However, as the company has not attempted to conceal the

error and has apparently made a voluntary, unprompted disclosure, the penalty will not

exceed 30% of the lost tax, and may be waived altogether.

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32 PAULINE SIMONS

Income tax computation, 2016–17

£ £

Director’s remuneration (8,000 × 12) 96,000

Benefits

Car benefit (W2) 3,915

Fuel benefit (£22,200 × 37% × 3/12) 2,054

Chauffeur – cost to employer 1,800

Computers (W3) 150

Living accommodation (W4) 13,200

Employer pension contributions – exempt 0

–––––– 21,119

–––––––

117,119

Expenses

Mileage allowance (W1) 920

Employee pension contributions (5% × 96,000) 4,800

Payroll gifts to charity 1,200

–––––– (6,920)

–––––––

Net income 110,199

Personal allowance (£11,000 – ½ × (110,199 – 100,000)) (5,901)

–––––––

Taxable income (= other) 104,298

–––––––

£ % £

Tax:

Other income 32,000 20 6,400

72,298 40 28,919

–––––––

104,298

––––––– ––––––

Income tax liability 35,319

––––––

WORKINGS

(1) Use of own car

Statutory mileage allowance: £

10,000 × 45p 4,500

2,000 × 25p 500

–––––– –––––

12,000 5,000

––––––

Actual mileage allowance (12,000 × 34p) 4,080

–––––

Deficiency = allowable expense 920

–––––

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(2) Car benefit

CO2 % %

Base value for 95 grams 16

5

95220 × 1% 25

–––––

41

Diesel supplement 3

–––––

44

–––––

Restricted to maximum of 37

–––––

Benefit: (37% × £42,324 × 3/12) 3,915

–––––

Tutorial note: List price is used for calculating the benefit; not cost to company.

(3) Computers

£ £

Old and new computers: No annual use benefit arises as

primarily provided for business use 0

Transfer of used computer:

MV 200

Amount paid (50)

––– 150

–––

150

–––

(4) Living accommodation

£ £

Annual charge – higher of:

(1) rent paid by employer 0

(2) gross rateable value 9,150 9,150

Additional charge:

3% × £(210,000 – 75,000) 4,050

––––––

13,200

––––––

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33 EAGLE LTD

(a) Corporation tax computations

Year ended 31 March 2016 2017

£ £

Trading profit/(loss) 75,300 0

Property business profit (W1) 0 49,321

Chargeable gains (W2) 9,300 26,479

–––––– ––––––

84,600 75,800

Property business loss (Note 1) (4,600)

––––––

80,000

Trading loss relief (W3) (80,000) (75,800)

–––––– ––––––

0 0

Qualifying charitable donations (Note 2) (2,600) (3,000)

–––––– ––––––

Taxable total profits 0 0

–––––– ––––––

Notes:

(1) The property business loss is set against total profits of the same accounting period

(and then future accounting periods) before relief for trading losses is taken under

s.37 CTA 2011.

(2) No tax relief is given for the qualifying charitable donations paid in the years ended

31 March 2016 and 31 March 2017 due to the loss relief eliminating the taxable

total profits. Relief is not available for the unrelieved amounts in previous or future

accounting periods.

(b) Tax effects of 80% subsidiary

(i) Group relief is only available for the corresponding accounting period of the

claimant company (Osprey) and the surrendering company (Eagle) = the lower of:

(1) 6/12 × £411,000 (the loss of Eagle) = £205,500; and

(2) 6/12 × £220,000 (the total profits after charitable donations of Osprey) =

£110,000.

(ii) Including group relief in the strategy for relieving Eagle’s trading loss is tax

efficient because it enables £110,000 of the otherwise unrelieved loss of

£255,200 to be relieved sooner than in Eagle itself.

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WORKINGS

(1) Property business profit – year ended 31 March 2017

Warehouse 1 Warehouse 2

£ £ £

Premium received 50,000

Less: 50,000 × 2% × (8 – 1) (7,000)

–––––– 43,000

Rent receivable – Warehouse 1 (12,600 × 9/12) 9,450

– Warehouse 2 (8,400 × 9/12) 6,300

––––––

52,450

Bad debt w/off (3/12 × 8,400) (2,100)

Repairs to roof (7,329)

–––––– ––––––

Profit/(loss) 52,450 (3,129)

(3,129) ––––––

––––––

49,321

––––––

Tutorial note: Capital element of premium is ignored as outside scope of F6 syllabus.

(2) Chargeable gain for year ended 31 March 2017

£

Proceeds 158,000

Cost (91,973)

–––––––

66,027

IA (June 2004– December 2016) 0.430 × £91,973 (39,548)

–––––––

26,479

–––––––

(3) Trading loss relief

Loss

£ £ £

Loss – Year ended 31 March 2017 (411,000)

Relief:

(i) Same AP (s.37)

Total profits = Other profits 75,800

Relief – lower of:

(i) loss 411,000

(ii) total profits 75,800 (75,800) 75,800

––––––– –––––––

(335,200)

(ii) Preceding 12 months (s.37)

Year ended 31 March 2016

Total profits 80,000

Relief – lower of:

(i) loss 335,200

(ii) total profits 80,000 (80,000) 80,000

––––––– –––––––

Unrelieved loss c/f at 31 March 2017 (255,200)

–––––––

Do not double count

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Marking Scheme

31 BARLOW LTD

(a) Default surcharge First late return/payment – initiation of process 1

– first surcharge period 1

Late returns/payments in first surcharge period:

Return 3 months ended

31.12.2014 – penalty 1

30.6.2015 – penalty, but waived 1

30.9.2015 – no tax due so no penalty 1

Extension of surcharge period 1

Suspension of surcharge process as four

successive timely returns/payments 1

––– 7

(b) Errors Notification of error 1

Maximum additional penalty ½

Grounds for mitigation of penalty 1½

––– 3

–––

10

–––

32 PAULINE SIMONS

Calculation of taxable income

Salary 1

Mileage allowance (W1) 1½

Car benefit (W2) 2

Fuel benefit 1

Chauffeur ½

Computers (W3) – annual use benefits ½

– transfer of used asset 1

Living accommodation (W4) 2

Occupational pension

Employer contributions ½

Employee contributions 1

Payroll gifts 1

Personal allowance 1

Tax calculation 2

–––

15

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33 EAGLE LTD

(a) Corporation tax computations:

Deducting losses and charitable donations in the right order 1½

Property business profit:

W1 – current income 4

Relief of the loss 1

Chargeable gains

W2 – current gain 1½

Trading loss relief

W4 – s.37 – same AP 1

– preceding 12m 1

Loss c/f 1

––– 11

(b) Tax effects of the 80% subsidiary

(i) Maximum amount of group relief:

Corresponding accounting period restriction 1½

Calculation 1½

––– 3

(iii) The benefit of using group relief:

Earlier relief for unrelieved loss 1

–––

15

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ATC-A acca books/READY/June 2017 F6 Exam... · Title: ATC-A.dot Author: Colin Channer Created Date:...

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