2013
ACCA F6
(UK)
Taxation
FA12
EXAM
ACCA
Paper
F6
K I T
Taxation FA2012 (UK)
Sixth edition published by
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Acknowledgements
The syllabus, study guide, exam questions and answers (where indicated) are
reproduced by kind permission of the Association of Chartered Certified Accountants.
Paper F6 (UK)
Taxation FA2012
c
Contents
Page
Questions and answers index v
Syllabus and exam format ix
Exam techniques xxv
Tax rates and allowances xxvii
Section
1 Practice questions 1
Income tax 1
Income tax losses 17
Partnerships 20
Capital gains tax 26
Inheritance tax 33
Corporation tax 35
Corporation tax losses 43
Chargeable gains 53
Groups of companies 56
Overseas aspects of corporation tax 59
Value added tax 63
Self assessment 67
2 Answers to practice questions 71
Income tax 71
Income tax losses 93
Page
Capital gains tax 104
Inheritance tax 116
Corporation tax 121
Corporation tax losses 130
Chargeable gains 140
Groups of companies 145
Overseas aspects of corporation tax 148
Value added tax 153
Self assessment 158
3 Mock exam questions 163
i
Questions and
answers index
Question page
Answer page
Exam
Income tax
1 Edmond Brick 1 71 ACCA F6 Dec 2007 (amended)
2 Peter Chic 2 72 ACCA F6 Dec 2008 (amended)
3 Sammi Smith 4 74 ACCA F6 Dec 2010 (amended)
4 Firstly plc 4 75 ACCA F6 Dec 2010 (amended)
5 William Wong 6 77 ACCA 2.3 Dec 2005 (amended)
6 Andrew Zoom 7 79 ACCA F6 June 2009 (amended)
7 Simon House 8 80 ACCA F6 Dec 2009 (amended)
8 Na Style 9 81 ACCA F6 Dec 2009 (amended)
9 Domingo, Erigo and Fargo 10 83 ACCA F6 June 2009 (amended)
10 Vanessa and Serene 12 86 ACCA F6 Dec 2007 (amended)
11 Sam and Kim White 13 88 ACCA F6 June 2008 (amended)
12 Ann Peach 15 90 ACCA F6 Dec 2008 (amended)
13 Nui Neu 16 92 ACCA 2.3 June 2005 (amended)
Income tax losses
14 Dee Zyne 17 93 ACCA 2.3 June 2005 (amended)
15 Samantha Fabrique 18 95 ACCA F6 Dec 2007 (amended)
16 Goff Green 19 96 ACCA F6 Dec 2010 (amended)
Partnerships19
17 Ae, Bee, Cae 20 97 ACCA F6 Dec 2008 (amended)
18 Peter, Quinton and Roger 21 99 ACCA 2.3 June 2002 (amended)
Question page
Answer page
Exam
20 Xio, Yana and Zoe 24 102 ACCA 2.3 Dec 2004 (amended)
Capital gains tax
21 David and Angela Brook 26 104 ACCA F6 Dec 2007 (amended)
22 Wilson Biazma 27 105 ACCA F6 June 2008 (amended)
23 Nim and Mae Lom 28 107 ACCA F6 June 2009 (amended)
24 Amanda Moon 29 109 ACCA F6 Dec 2009 (amended)
25 Michael Chin 30 110 ACCA 2.3 June 2005 (amended)
26 Sophia Tang 31 112 ACCA 2.3 Dec 2005 (amended)
27 Lim Lam 31 113 ACCA F6 Dec 2010 (amended)
28 Nui Lee 32 115 ACCA 2.3 June 2003 (amended)
Inheritance tax
29 Alex Reader 33 116 ACCA 3.2 Pilot (amended)
30 Henry Major 34 118 ACCA 3.2 Dec 2003 (amended)
31 Debbie Morgan 35 119 ACCA 3.2 Jun 2005 (amended)
Corporation tax
32 Gastron Ltd 35 121 ACCA F6 June 2009 (amended)
33 Do‐Not‐Panic Ltd 38 123 ACCA F6 June 2008 (amended)
34 Stretched Ltd 39 125 ACCA 2.3 June 2005 (amended)
35 Wireless Ltd 39 126 ACCA F6 June 2008 (amended)
36 Crash‐Bash Ltd 41 128 ACCA F6 Dec 2010 (amended)
Corporation tax losses
37 Volatile Ltd 43 130 ACCA F6 Dec 2010 (amended)
38 Mice Ltd 44 132 ACCA F6 June 2010 (amended)
39 Jogger Ltd 46 134 ACCA F6 Dec 2008 (amended)
40 Sofa Ltd 48 136 ACCA F6 Dec 2007 (amended)
41 Spacious Ltd 51 138 ACCA 2.3 Dec 2003 (amended)
Chargeable gains
42 Problematic Ltd 53 140 ACCA F6 June 2009 (amended)
43 Astute Ltd 54 141 ACCA 2.3 Dec 2001 (amended)
44 Hawk Ltd 55 142 ACCA F6 Dec 2008 (amended)
45 Earth Ltd 56 144 ACCA 2.3 June 2003 (amended)
Group of companies
46 Red and White 56 145 ACCA 2.3 Dec 2001 (amended)
Question page
Answer page
Exam
Overseas aspects of corporation tax
49 Wash plc 59 148 ACCA 2.3 June 2002 (amended)
50 Sirius Ltd 60 150 ACCA 2.3 Dec 2003 (amended)
51 Neung Ltd 60 151 ACCA F6 Dec 2010 (amended)
Value added tax
52 Anne Attire 63 153 ACCA F6 June 2009 (amended)
52 Victor Style 64 154 ACCA 2.3 Dec 2004 (amended)
53 Astute, Bright and Clever 64 155 ACCA 2.3 June 2003 (amended)
54 Ram-Rom Ltd 65 156 ACCA 2.3 Dec 2005 (amended)
55 Sandy Brick 66 157 ACCA 2.3 June 2004 (amended)
Self assessment
56 Vera Old 67 158 ACCA 2.3 June 2005 (amended)
57 Pi Casso 68 159 ACCA F6 June 2008 (amended)
58 Ernest Vader 69 160 ACCA F6 June 2010 (amended)
Paper F6 (UK) Taxation FA2012
S
Syllabus and study guide
Aim
To develop knowledge and skills relating to the tax system as applicable to
individuals, single companies, and groups of companies.
Main capabilities
On successful completion of this paper candidates should be able to: A Explain the operation and scope of the tax system
B Explain and compute the income tax liabilities of individuals
C Explain and compute the corporation tax liabilities of individual companies and
groups of companies
D Explain and compute the chargeable gains arising on companies and
individuals
E Explain and compute the inheritance tax liabilities of individuals
F Explain and compute the effect of national insurance contributions on
employees, employers and the self employed
G Explain and compute the effects of value added tax on incorporated and
unincorporated businesses
H Identify and explain the obligations of tax payers and/or their agents and the implications of non‐compliance
Rationale
Candidates are introduced to the rationale behind – and the functions of – the tax system. The syllabus then considers the separate taxes that an accountant would need to have a detailed knowledge of, such as income tax from self‐employment,
employment and investments, the corporation tax liability of individual companies
and groups of companies, the inheritance tax liabilities of individuals, the national insurance contribution liabilities of both employed and self employed persons, the value added tax liability of businesses, the chargeable gains arising on disposals of investments by both individuals and companies, and the inheritance tax liabilities arising on chargeable lifetime transfers and on death.
Having covered the core areas of the basic taxes, candidates should be able to compute tax liabilities, explain the basis of their calculations, apply tax planning
techniques for individuals and companies and identify the compliance issues for
each major tax through a variety of business and personal scenarios and situations.
Syllabus
A The UK tax system
1 The overall function and purpose of taxation in a modern economy 2 Different types of taxes
3 Principal sources of revenue law and practice 4 Tax avoidance and tax evasion
B. Income tax liabilities
1 The scope of income tax 2 Income from employment 3 Income from self-employment 4 Property and investment income
5 The comprehensive computation of taxable income and income tax liability
6 The use of exemptions and reliefs in deferring and minimising income tax liabilities
C Corporation tax liabilities
1 The scope of corporation tax 2 Taxable total profits
3 The comprehensive computation of corporation tax liability
4 The effect of a group corporate structure for corporation tax purposes 5 The use of exemptions and reliefs in deferring and minimising
D Chargeable gains
1 The scope of the taxation of capital gains
2 The basic principles of computing gains and losses
3 Gains and losses on the disposal of movable and immovable property 4 Gains and losses on the disposal of shares and securities
5 The computation of the capital gains tax payable by individuals
6 The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets
E Inheritance tax
1 The scope of inheritance tax
2 The basic principles of computing transfers of value
3 The liabilities arising on chargeable lifetime transfers and on the death of an individual
4 The use of exemptions in deferring and minimising inheritance tax liabilities
5 Payment of inheritance tax
F National insurance contributions
1 The scope of national insurance
2 Class 1 and Class 1A contributions for employed persons 3 Class 2 and Class 4 contributions for self-employed persons
G Value added tax
1 The scope of value added tax (VAT) 2 The VAT registration requirements 3 The computation of VAT liabilities 4 The effect of special schemes
H The obligations of tax payers and/or their agents
1 The systems for self-assessment and the making of returns
2 The time limits for the submission of information, claims and payment of tax, including payments on account
Approach to examining the syllabus
The syllabus is assessed by a three-hour paper-based examination.
The paper will be predominantly computational and will have five questions, all of which will be compulsory.
Question one will focus on income tax and question two will focus on corporation tax. The two questions will be for a total of 55 marks, with one of the questions being for 30 marks and the other being for 25 of the marks. Question three will focus on chargeable gains (either personal or corporate)
and will be for 15 marks.
Questions four and five will be on any area of the syllabus, can cover more than one topic, and will be for 15 marks.
There will always be a minimum of 10 marks on value added tax. These marks will normally be included within question one or question two, although there might be a separate question on value added tax.
There will always be between 5 and 15 marks on inheritance tax. Inheritance tax can be included within questions three, four or five.
National insurance contributions will not be examined as a separate question, but may be examined in any question involving income tax or corporation tax.
Groups and overseas aspects may be examined in question two, question four or question five.
A small element of chargeable gains may be included in questions other than question three.
Any of the five questions might include the consideration of issues relating to the minimisation or deferral of tax liabilities.
Study guide
This study guide provides more detailed guidance on the syllabus. You should use this as the basis of your studies.
A THE UK TAX SYSTEM
1 The overall function and purpose of taxation in a modern economy
(a) Describe the purpose (economic, social etc) of taxation in a modern economy.
2 Different types of taxes
(a) Identify the different types of capital and revenue tax. (b) Explain the difference between direct and indirect taxation.
3 Principal sources of revenue law and practice
4 Tax avoidance and tax evasion
(a) Explain the difference between tax avoidance and tax evasion. (b) Explain the need for an ethical and professional approach.
Excluded topics Anti-avoidance legislation.
B INCOME TAX LIABILITIES
1 The scope of income tax
(a) Explain how the residence of an individual is determined.
Excluded topics
The treatment of a person who comes to the UK to work or a person who leaves the UK to take up employment overseas.
Foreign income, non-residents and double taxation relief. Income from trusts and settlements.
Child benefit income tax charge.
2 Income from employment
(a) Recognise the factors that determine whether an engagement is treated as employment or self-employment.
(b) Recognise the basis of assessment for employment income. (c) Compute the income assessable.
(d) Recognise the allowable deductions, including travelling expenses. (e) Discuss the use of the statutory approved mileage allowances. (f) Explain the PAYE system.
(g) Identify P11D employees.
(h) Compute the amount of benefits assessable.
(i) Explain the purpose of a dispensation from HM Revenue & Customs.
(j) Explain how charitable giving can be made through a payroll deduction scheme.
Excluded topics
The calculation of a car benefit where emission figures are not available. The exemption for zero emission company motor cars.
Share and share option incentive schemes for employees.
Payments on the termination of employment, and other lump sums received by employees.
3 Income from self-employment
(c) Recognise the expenditure that is allowable in calculating the tax-adjusted trading profit.
(d) Recognise the relief that can be obtained for pre-trading expenditure.
(e) Compute the assessable profits on commencement and on cessation.
(f) Change of accounting date
(i) Recognise the factors that will influence the choice of accounting date.
(ii) State the conditions that must be met for a change of accounting date to be valid.
(iii) Compute the assessable profits on a change of accounting date.
(g) Capital allowances
(i) Define plant and machinery for capital allowances purposes. (ii) Compute writing down allowances, first year allowances
and the annual investment allowance. (iii) Compute capital allowances for motor cars.
(iv) Compute balancing allowances and balancing charges. (v) Recognise the treatment of short life assets.
(vi) Explain the treatment of assets included in the special rate pool.
(h) Relief for trading losses
(i) Understand how trading losses can be carried forward. (ii) Explain how trading losses can be carried forward following
the incorporation of a business.
(iii) Understand how trading losses can be claimed against total income and chargeable gains.
(iv) Explain and compute the relief for trading losses in the early years of a trade.
(vi) Explain and compute terminal loss relief. (i) Partnerships and limited liability partnerships
(i) Explain how a partnership is assessed to tax.
(ii) Compute the assessable profits for each partner following a change in the profit sharing ratio.
(iii) Compute the assessable profits for each partner following a change in the membership of the partnership.
(iv) Describe the alternative loss relief claims that are available to partners.
Excluded topics
The 100% first-year allowance for expenditure on renovating business premises in disadvantaged areas, flats above shops and water technologies.
Capital allowances for industrial buildings, agricultural buildings, patents, scientific research and know how.
Capital allowances for motor cars already owned at 6 April 2009 (1 April 2009 for companies).
Apportionment in order to determine the rate of writing down allowance or the amount of annual investment allowance where a period of account spans 6 April 2012 (1 April 2012 for companies).
Enterprise zones.
Investment income of a partnership.
The allocation of notional profits and losses for a partnership. Farmersaveraging of profits.
The averaging of profits for authors and creative artists. Loss relief for shares in unquoted trading companies.
4 Property and investment income
(a) Compute property business profits.
(b) Explain the treatment of furnished holiday lettings. (c) Describe rent-a-room relief.
(d) Compute the amount assessable when a premium is received for the grant of a short lease.
(e) Understand how relief for a property business loss is given. (f) Compute the tax payable on savings income.
(g) Compute the tax payable on dividend income.
(h) Explain the treatment of individual savings accounts (ISAs) and other tax exempt investments.
Excluded topics
The deduction for expenditure by landlords on energy-saving items. Premiums for granting subleases.
Junior ISAs.
5 The comprehensive computation of taxable income and income tax
liability
(a) Prepare a basic income tax computation involving different types of income.
(b) Calculate the amount of personal allowance available generally, and for people aged 65 and above.
(c) Compute the amount of income tax payable.
(f) Explain the treatment of property owned jointly by a married couple, or by a couple in a civil partnership.
Excluded topics
The blind person’s allowance and the married couple’s allowance. Tax credits.
Maintenance payments. The income of minor children.
6 The use of exemptions and reliefs in deferring and minimising
income tax liabilities
(a) Explain and compute the relief given for contributions to personal pension schemes, using the rules applicable from 6 April 2011. (b) Describe the relief given for contributions to occupational pension
schemes, using the rules applicable from 6 April 2011.
(c) Explain how a married couple or couple in a civil partnership can minimise their tax liabilities.
Excluded topics
The conditions that must be met in order for a pension scheme to obtain approval from HM Revenue & Customs.
The enterprise investment scheme and the seed enterprise investment scheme. Venture capital trusts.
Tax reduction scheme for gifts of pre-eminent objects.
C CORPORATION TAX LIABILITIES
1 The scope of corporation tax
(a) Define the terms ‘period of account’, ‘accounting period’, and ‘financial year’.
(b) Recognise when an accounting period starts and when an accounting period finishes.
(c) Explain how the residence of a company is determined.
Excluded topics Investment companies. Close companies.
Companies in receivership or liquidation. Reorganisations.
The purchase by a company of its own shares. Personal service companies.
(b) Explain how relief can be obtained for pre-trading expenditure. (c) Compute capital allowances (as for income tax).
(d) Compute property business profits.
(e) Explain the treatment of interest paid and received under the loan relationship rules.
(f) Explain the treatment of qualifying charitable donations. (g) Understand how trading losses can be carried forward.
(h) Understand how trading losses can be claimed against income of the current or previous accounting periods.
(i) Recognise the factors that will influence the choice of loss relief claim.
(j) Explain how relief for a property business loss is given. (k) Compute taxable total profits.
Excluded topics
Research and development expenditure. Non-trading deficits on loan relationships. Relief for intangible assets.
3 The comprehensive computation of corporation tax liability
(a) Compute the corporation tax liability and apply marginal relief. (b) Explain the implications of receiving franked investment income.
4 The effect of a group corporate structure for corporation tax
purposes
(a) Define an associated company and recognise the effect of being an associated company for corporation tax purposes.
(b) Define a 75% group, and recognise the reliefs that are available to members of such a group.
(c) Define a 75% capital gains group, and recognise the reliefs that are available to members of such a group.
(d) Compare the UK tax treatment of an overseas branch to an overseas subsidiary
(e) Calculate double taxation relief.
(f) Explain the election for the exemption of profits from overseas branches.
(g) Explain the basic principles of the transfer pricing rules.
Excluded topics
Relief for trading losses incurred by an overseas subsidiary. Consortia.
The anti-avoidance provisions where arrangements exist for a company to leave a group.
The tax charge that applies where a company leaves a group within six years of receiving an asset by way of a no gain/no loss transfer.
Controlled foreign companies.
Foreign companies trading in the UK. Expense relief in respect of overseas tax.
The set off of qualifying charitable donations and losses for the purpose of calculating double taxation relief..
Transfer pricing transactions not involving an overseas company.
5 The use of exemptions and reliefs in deferring and minimising
corporation tax liabilities
(The use of such exemptions and reliefs is implicit within all of the above sections 1 to 4 of part C of the syllabus, concerning corporation tax)
D CHARGEABLE GAINS
1 The scope of the taxation of capital gains
(a) Describe the scope of capital gains tax.
(b) Explain how the residence and ordinary residence of an individual is determined.
(c) List those assets which are exempt.
Excluded topics
Assets situated overseas and double taxation relief. Partnership capital gains.
2 The basic principles of computing gains and losses
(a) Compute capital gains for both individuals and companies. (b) Calculate the indexation allowance available to companies.
(c) Explain the treatment of capital losses for both individuals and companies.
(d) Explain the treatment of transfers between a husband and wife or between a couple in a civil partnership.
(e) Compute the amount of allowable expenditure for a part disposal. (f) Explain the treatment where an asset is damaged, lost or
destroyed, and the implications of receiving insurance proceeds and reinvesting such proceeds.
Losses in the year of death.
Relief for losses incurred on loans made to traders. Negligible value claims.
3 Gains and losses on the disposal of movable and immovable
property
(a) Identify when chattels and wasting assets are exempt. (b) Compute the chargeable gain when a chattel is disposed of. (c) Calculate the chargeable gain when a wasting asset is disposed of. (d) Compute the exemption when a principal private residence is
disposed of.
(e) Calculate the chargeable gain when a principal private residence has been used for business purposes.
(f) Identify the amount of letting relief available when a principal private residence has been let out.
Excluded topics
The disposal of leases and the creation of sub-leases.
4 Gains and losses on the disposal of shares and securities
(a) Calculate the value of quoted shares where they are disposed of by way of a gift.
(b) Explain and apply the identification rules as they apply to individuals and to companies, including the same day, nine day, and thirty day matching rules.
(c) Explain the pooling provisions.
(d) Explain the treatment of bonus issues, rights issues, takeovers and reorganisations.
(e) Explain the exemption available for gilt-edged securities and qualifying corporate bonds.
Excluded topics
A detailed question on the pooling provisions for shares as they apply to limited companies.
The small part disposal rules applicable to rights issues, takeovers and reorganisations.
Substantial shareholdings.
Gilt-edged securities and qualifying corporate bonds other than the fact that they are exempt.
5 The computation of the capital gains tax payable by individuals
6 The use of exemptions and reliefs in deferring and minimising tax liabilities arising on the disposal of capital assets
(a) Explain and apply entrepreneurs’ relief as it applies to individuals. (b) Explain and apply rollover relief as it applies to individuals and
companies.
(c) Explain and apply holdover relief for the gift of business assets. (d) Explain and apply the incorporation relief that is available upon
the transfer of a business to a company.
Excluded topics Reinvestment relief.
Entrepreneurs’ relief for associated disposals.
E INHERITANCE TAX
1 The scope of inheritance tax
(a) Describe the scope of inheritance tax
(b) Identify and explain the persons chargeable.
Excluded topics
Pre 18 March 1986 lifetime transfers. Transfers of value by close companies.
Domicile, deemed domicile, and non-UK domiciled individuals. Trusts.
2 The basic principles of computing transfers of value
(a) State, explain and apply the meaning of transfer of value, chargeable transfer and potentially exempt transfer.
(b) Demonstrate the diminution in value principle.
(c) Demonstrate the seven year accumulation principle taking into account changes in the level of the nil rate band.
Excluded topics Excluded property. Related property.
The tax implications of the location of assets. Gifts with reservation of benefit.
Associated operations.
3 The liabilities arising on chargeable lifetime transfers and on the
death of an individual
(c) Compute the tax liability on a death estate.
(d) Understand and apply the transfer of any unused nil rate band between spouses.
Excluded topics
Specific rules for the valuation of assets (values will be provided). Business property relief.
Agricultural relief.
Relief for the fall in value of lifetime gifts. Quick succession relief.
Double tax relief.
Variation of wills and disclaimers of legacies. Grossing up on death.
Post mortem reliefs. Double charges legislation.
The reduced rate of inheritance tax payable on death when a proportion of a person’s estate is bequeathed to charity.
4 The use of exemptions in deferring and minimising inheritance tax
liabilities
(a) Understand and apply the following exemptions: (i) small gifts exemption
(ii) annual exemption
(iii) normal expenditure out of income (iv) gifts in consideration of marriage (v) gifts between spouses
Excluded topics Gifts to charities. Gifts to political parties. Gifts for national purposes.
5 Payment of inheritance tax
(a) Identify who is responsible for the payment of inheritance tax. (b) Advise on the due date for payment of inheritance tax.
Excluded topics
Administration of inheritance tax other than listed above. The instalment option for the payment of tax.
F NATIONAL INSURANCE CONTRIBUTIONS
1 The scope of national insurance
(a) Describe the scope of national insurance.
2 Class 1 and Class 1A contributions for employed persons
(a) Compute Class 1 NIC. (b) Compute Class 1A NIC.
Excluded topics
The calculation of directors’ national insurance on a month by month basis. Contracted out contributions.
3 Class 2 and Class 4 contributions for self-employed persons
(a) Compute Class 2 NIC. (b) Compute Class 4 NIC.
Excluded topics
The offset of trading losses against non-trading income.
G VALUE ADDED TAX
1 The scope of value added tax (VAT)
(a) Describe the scope of VAT.
(b) List the principal zero-rated and exempt supplies.
2 The VAT registration requirements
(a) Recognise the circumstances in which a person must register for VAT.
(b) Explain the advantages of voluntary VAT registration.
(c) Explain the circumstances in which pre-registration input VAT can be recovered.
(d) Explain how and when a person can deregister for VAT.
(e) Explain the conditions that must be met for two or more companies to be treated as a group for VAT purposes, and the consequences of being so treated.
3 The computation of VAT liabilities
(a) Explain how VAT is accounted for and administered.
(b) Recognise the tax point when goods or services are supplied. (c) List the information that must be given on a VAT invoice.
(f) Compute the relief that is available for impairment losses on trade debts.
(g) Explain the circumstances in which the default surcharge, a penalty for an incorrect VAT return, and default interest will be applied.
(h) Explain the treatment of imports, exports and trade within the European Union.
Excluded topics
VAT periods where there is a change of VAT rate.
Partial exemption.
In respect of property and land: leases, do-it-yourself builders, and a landlord’s option to tax.
Penalties apart from those listed in the study guide.
4 The effect of special schemes
(a) Describe the cash accounting scheme, and recognise when it will be advantageous to use the scheme.
(b) Describe the annual accounting scheme, and recognise when it will be advantageous to use the scheme.
(c) Describe the flat rate scheme, and recognise when it will be advantageous to use the scheme.
Excluded topics
The second-hand goods scheme. The capital goods scheme. The special schemes for retailers.
H THE OBLIGATIONS OF TAX PAYERS AND/OR THEIR AGENTS
1 The systems for self-assessment and the making of returns
(a) Explain and apply the features of the self-assessment system as it applies to individuals.
(b) Explain and apply the features of the self-assessment system as it applies to companies, including the use of iXBRL.
2 The time limits for the submission of information, claims and
payment of tax, including payments on account
(a) Recognise the time limits that apply to the filing of returns and the making of claims.
(b) Recognise the due dates for the payment of tax under the self-assessment system.
(c) Compute payments on account and balancing
payments/repayments for individuals.
(e) List the information and records that taxpayers need to retain for tax purposes.
Excluded topics
The payment of CGT by annual instalments.
3 The procedures relating to compliance checks, appeals and
disputes
(a) Explain the circumstances in which HM Revenue & Customs can make a compliance check into a self-assessment tax return.
(b) Explain the procedures for dealing with appeals and disputes.
4 Penalties for non-compliance
(a) Calculate late payment interest.
Paper F6 (UK)
Taxation FA2012
e
Exam techniques
Five steps to exam success
1
Know your subject
It sounds obvious, but you really need to know all topics in the syllabus – ACCA can test you on any area of the syllabus so even those topics you think might ‘never come up’ could be on your next exam. Whatever the format, questions require that you have
learnt definitions, know key words and their meanings and understand concepts,
theories and rules.
2
Know your exam structure
Do you know how many questions you need to attempt? Do you know how long your exam is? What type of questions come up? Knowing this is essential!
The F6 exam is three hours long (plus an additional 15 minutes reading time).
The paper will be mainly computational and will have five questions, all of which will be compulsory.
Question one will focus on income tax and question two will focus on
corporation tax. The two questions will be for a total of 55 marks, with one of the questions being for 30 marks and the other being for 25 marks.
Question three will be for 15 marks, and will focus on chargeable gains (either
personal or corporate).
Questions four and five will be on any area of the syllabus, can cover more than
one topic, and will be for 15 marks.
There will always be between 5 and 15 marks on inheritance tax. Inheritance tax can be included within questions three, four or five.
National insurance contributions will not be examined as a separate question, but may be examined in any question involving income tax or corporation tax.
Groups and overseas aspects may be examined in question two, question four or
question five.
A small element of chargeable gains may be included in questions other than question three.
Any of the five questions might include the consideration of issues relating to the minimisation or deferral of tax liabilities.
3
Practice makes perfect
One of the best ways to prepare for your actual exam is to try lots of past questions under timed conditions. As actual past questions are based on out of date rates and regulations, all of the questions in this kit have been updated to cover current rates and allowances. They have also been amended to include legislation introduced since the
question was originally set. New legislation frequently appears in examination
questions as it is not only topical, but also helps to provide the examiner with inspiration for questions.
Attempt ALL of the questions in this exam kit and compare your answers with the suggested answers to see what you need to improve on and the areas you need to go back and revise! Go back and revise and then reattempt questions if you get any wrong.
4
Time yourself
If you are sitting an exam worth 100 marks in three hours, you should aim to spend 1.8 minutes on each mark. Make sure that you have double‐checked your strategy of how you are going to allocate your time before you go into the exam and that you are comfortable answering five questions in three hours.
Since you don’t need to attempt the questions in order, a good strategy could be to attempt the ‘easy’ questions (such as those you either know or you don’t) at the beginning and save those that involve calculations or a bit more thought to the end.
5
Reading and planning time in the exam
You have been given an extra 15 minutes ‘reading and planning’ time in the exam. Use it wisely! You are allowed to read the questions, begin to plan your answers and use
your calculator to make some preliminary numerical calculations. You’re allowed to
Paper F6 (UK) Taxation FA2012
t
Tax rates and
allowances
Contents
1
Tax rates and allowances
1.1
Tax rates and allowances given in the examination paper
Income tax
Normal rates
Dividend rates
% %
Basic rate £0 – £34,370 20 10
Higher rate £34,371 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 £2,710 of taxable income.
Personal allowance
£
Personal allowance Standard 8,105
Personal allowance 65 – 74 10,500
Personal allowance 75 and over 10,660
Income limit for age related allowances 25,400
Income limit for standard personal allowances 100,000
Car benefit percentage
The relevant base level of CO2 emissions is 100 grams per kilometre.
The percentage rates applying to petrol cars with CO2 emissions up to this level are:
75 grams per kilometre or less 5% 76 and 99 grams per kilometre 10%
100 grams per kilometre 11%
Car fuel benefit
The base figure for calculating the car fuel benefit is £20,200.
Individual savings accounts
Personal scheme limit
Annual allowance £50,000
The maximum contribution that can qualify for tax relief without any earnings is £3,600.
Authorised mileage allowances: cars
Up to 10,000 miles 45p
Over 10,000 miles 25p
Capital allowances: rates of allowance
%
Plant and machinery
Main pool 18
Special rate pool 8
Motor cars
New cars with CO2 emissions up to 110 grams per kilometre 100 CO2 emissions between 111 and 160 grams per kilometre 18 CO2 emissions over 160 grams per kilometre 8
Annual investment allowance
First £25,000 of expenditure 100
Corporation tax
Financial year 2010 2011 2012
Small profits rate 21% 20% 20%
Main rate 28% 26% 24%
Lower limit 300,000 300,000 300,000
Upper limit 1,500,000 1,500,000 1,500,000
Marginal relief fraction 7/400 3/200 1/100
Marginal relief
Standard fraction x (U – A) x N/A
Value added tax
Standard rate 20%
Registration limit 77,000
Inheritance tax
Inheritance tax: tax rates
£1 - £325,000 Nil
Excess: - Death rate 40%
‐ Lifetime rate 20%
Inheritance tax: taper relief
Years before death Percentage
reduction %
Over 3 but less than 4 years 20
Over 4 but less than 5 years 40
Over 5 but less than 6 years 60
Over 6 but less than 7 years 80
Capital gains tax
Rates of tax ‐ Lower rate 18%
‐ Higher rate 28%
Annual exempt amount £10,600
Entrepreneurs’ relief ‐ Lifetime limit £10,000,000
‐ Rate of tax 10%
National Insurance contributions (not contracted out rates)
%
Class 1 Employee £1 – £7,605 per year Nil
£7,606 – £42,475 per year 12.0
£42,476 and above per year 2.0
Class 1 Employer £1 – £7,488 per year Nil
£7, 489 and above per year 13.8
Class 1A 13.8
Class 2 £2.65 per week
Small earnings exemption £5,595
Class 4 £1 – £7,605 per year Nil
£7,606 – £42,475 per year 9.0
£42,476 and above per year 2.0
Rates of interest
Official rate of interest: 4%
2
Retail price indices
2.1
RPIs used for examples and questions in this text
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
January – 82.61 86.84 91.20 96.25 100.0 103.3 111.0 119.5 130.2 135.6 February – 82.97 87.20 91.94 96.60 100.4 103.7 111.8 120.2 130.9 136.3 March 79.44 83.12 87.48 92.80 96.73 100.6 104.1 112.3 121.4 131.4 136.7 April 81.04 84.28 88.64 94.78 97.67 101.8 105.8 114.3 125.1 133.1 138.8 May 81.62 84.64 88.97 95.21 97.85 101.9 106.2 115.0 126.2 133.5 139.3 June 81.85 84.84 89.20 95.41 97.79 101.9 106.6 115.4 126.7 134.1 139.3 July 81.88 85.30 89.10 95.23 97.52 101.8 106.7 115.5 126.8 133.8 138.8 August 81.90 85.68 89.94 95.49 97.82 102.1 107.9 115.8 128.1 134.1 138.9 September 81.85 86.06 90.11 95.44 98.30 102.4 108.4 116.6 129.3 134.6 139.4 October 82.26 86.36 90.67 95.59 98.45 102.9 109.5 117.5 130.3 135.1 139.9 November 82.66 86.67 90.95 95.92 99.29 103.4 110.0 118.5 130.0 135.6 139.7 December 82.51 86.89 90.87 96.05 99.62 103.3 110.3 118.8 129.9 135.7 139.2
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
January 137.9 141.3 146.0 150.2 154.4 159.5 163.4 166.6 171.1 173.3 178.4 February 138.8 142.1 146.9 150.9 155.0 160.3 163.7 167.5 172.0 173.8 179.3 March 139.3 142.5 147.5 151.5 155.4 160.8 164.1 168.4 172.2 174.5 179.9 April 140.6 144.2 149.0 152.6 156.3 162.6 165.2 170.1 173.1 175.7 181.2 May 141.1 144.7 149.6 152.9 156.9 163.5 165.6 170.7 174.2 176.2 181.5 June 141.0 144.7 149.8 153.0 157.5 163.4 165.6 171.1 174.4 176.2 181.3 July 140.7 144.0 149.1 152.4 157.5 163.0 165.1 170.5 173.3 175.9 181.3 August 141.3 144.7 149.9 153.1 158.5 163.7 165.5 170.5 174.0 176.4 181.6 September 141.9 145.0 150.6 153.8 159.3 164.4 166.2 171.7 174.6 177.6 182.5 October 141.8 145.2 149.8 153.8 159.5 164.5 166.5 171.6 174.3 177.9 182.6 November 141.6 145.3 149.8 153.9 159.6 164.4 166.7 172.1 173.6 178.2 182.7 December 141.9 146.0 150.7 154.4 160.0 164.4 167.3 172.2 173.4 178.5 183.5
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
January 183.1 188.9 193.4 201.6 209.8 210.1 217.9 229.0 238.0 250.4 February 183.8 189.6 194.2 203.1 211.4 211.4 219.2 231.3 239.9 250.8 March 184.6 190.5 195.0 204.4 212.1 211.3 220.7 232.5 240.8 251.1 April 185.7 191.6 196.5 205.4 214.0 211.5 222.8 234.4 242.5 251.3 May 186.5 192.0 197.7 206.2 215.1 212.8 223.6 235.2 242.4
June 186.8 192.2 198.5 207.3 216.8 213.4 224.1 235.2 241.8 July 186.8 192.2 198.5 206.1 216.5 213.4 223.6 234.7 242.1 August 187.4 192.6 199.2 207.3 217.2 214.4 224.5 236.1 243.0 September 188.1 193.1 200.1 208.0 218.4 215.3 225.3 237.9 244.2 October 188.6 193.3 200.4 208.9 217.7 216.0 225.8 238.0 244.4
November 189.0 193.6 200.1 209.7 216.0 216.6 226.8 238.5 244.7
December 189.9 194.1 202.7 210.9 212.9 218.0 228.4 239.4 250.0
SECTION 1
Q
&
A
Practice questions
Income tax
1 Edmond
Brick
Edmond Brick owns four properties which are let out. The following information relates to the tax year 2012–13:
Property one
This is a freehold house that qualifies as a trade under the furnished holiday letting rules. The property was purchased on 6 April 2012. During the tax year 2012–13 the property was let for eighteen weeks at £370 per week. Edmond spent £5,700 on furniture and kitchen equipment during April 2012. Due to a serious flood £7,400 was spent on repairs during November 2012. The damage was not covered by insurance. The other expenditure on this property for the tax year 2012-13 amounted to £2,710, and this is all allowable.
Property two
This is a freehold house that is let out furnished. The property was let throughout the tax year 2012–13 at a monthly rent of £575, payable in advance. During the tax year 2012–13 Edmond paid council tax of £1,200 and insurance of £340 in respect of this property. He claims the wear and tear allowance for this property.
Property three
Property four
This is a leasehold office building that is let out unfurnished. Edmond pays an annual rent of £6,800 for this property, but did not pay a premium when he acquired it. On 6 April 2012 the property was sub-let to a tenant, with Edmond receiving a premium of £15,000 for the grant of a five-year lease. He also received the annual rent of £4,600 which was payable in advance. During the tax year 2012–13 Edmond paid insurance of £360 in respect of this property.
Furnished room
During the tax year 2012–13 Edmond rented out one furnished room of his main residence. During the year he received rent of £5,040, and incurred allowable expenditure of £1,140 in respect of the room. Edmond always computes the taxable income for the furnished room on the most favourable basis.
Required:
(a) State the income tax advantages of property one being treated as a trade under
the furnished holiday letting rules. (2 marks)
(b) Calculate Edmond’s furnished holiday letting loss in respect of property one for
the tax year 2012–13. (3 marks)
(c) Explain how Edward’s furnished holiday letting loss for the tax year 2012-13 can
be relieved. (1 mark)
(d) Calculate Edmond’s property business profit in respect of the other three properties and the furnished room for the tax year 2012–13. (9 marks)
(Total: 15 marks)
2
Peter Chic
Peter Chic is employed by Haute-Couture Ltd as a fashion designer. The following information is available for the tax year 2012–13:
Employment
(1) During the tax year 2012-13 Peter was paid a gross annual salary of £95,600 by Haute-Couture Ltd. Income tax of £42,558 was deducted from this figure under PAYE.
(2) In addition to his salary, Peter received two bonus payments from Haute-Couture Ltd during the tax year 2012–13. The first bonus of £14,300 was paid on 30 April 2012 and was in respect of the year ended 31 December 2011. Peter became entitled to this first bonus on 10 April 2012. The second bonus of £13,600 was paid on 31 March 2013 and was in respect of the year ended 31 December 2012. Peter became entitled to this second bonus on 25 March 2013.
made to the property during June 2011. The annual value of the property is £9,100.
(5) Throughout the tax year 2012–13 Haute-Couture Ltd provided Peter with two mobile telephones. The telephones had each cost £250 when purchased by the company in January 2012.
(6) On 5 January 2013 Haute-Couture Ltd paid a health club membership fee of £510 for the benefit of Peter.
(7) During February 2013 Peter spent five nights overseas on company business. Haute-Couture Ltd paid Peter a daily allowance of £10 to cover the cost of personal expenses such as telephone calls to his family.
Property income
(1) Peter owns two properties, which are let out. Both properties are freehold houses, with the first property being let out furnished and the second property being let out unfurnished.
(2) The first property was let from 6 April 2012 to 31 August 2012 at a monthly rent of £500, payable in advance. On 31 August 2012 the tenant left owing two months’ rent which Peter was unable to recover. The property was not re-let before 5 April 2013. During March 2013 Peter spent £600 repairing the roof of this property.
(3) The second property was purchased on 1 July 2012, and was then let from 1 August 2012 to 5 April 2013 at a monthly rent of £820, payable in advance. During July 2012 Peter spent £875 on advertising for tenants. For the period 1 July 2012 to 5 April 2013 he paid loan interest of £1,800 in respect of a loan that was taken out to purchase this property.
(4) Peter insured both of his rental properties at a total cost of £660 for the year ended 30 June 2012, and £1,080 for the year ended 30 June 2013. The insurance is payable annually in advance.
(5) Where possible, Peter claims the wear and tear allowance.
Other information
(1) During the tax year 2012–13 Peter received building society interest of £1,760 and dividends of £720. These were the actual cash amounts received.
(2) On 4 August 2012 Peter received a premium bond prize of £100.
(3) During the tax year 2012–13 Peter made gift aid donations totalling £2,340 (net) to national charities.
Required:
(a) Calculate the income tax payable by Peter Chic for the tax year 2012–13.
(22 marks)
(b) Calculate the total amount of national insurance contributions that will have been paid by Peter Chic and Haute-Couture Ltd in respect of Peter’s earnings and
benefits for the tax year 2012–13. (4 marks)
3
Sammi Smith
You should assume that today’s date is 20 March 2012.
Sammi Smith is a director of Smark Ltd. The company has given her the choice of being provided with a leased company motor car or alternatively being paid additional director’s remuneration and then privately leasing the same motor car herself.
Company motor car
The motor car will be provided throughout the tax year 2012–13, and will be leased by Smark Ltd at an annual cost of £26,540. The motor car will be petrol powered, will have a list price of £80,000, and will have an official CO2 emission rate of 228 grams per kilometre.
The lease payments will cover all the costs of running the motor car except for fuel. Smark Ltd will not provide Sammi with any fuel for private journeys.
Additional director’s remuneration
As an alternative to having a company motor car, Sammi will be paid additional gross director’s remuneration of £26,000 during the tax year 2012–13. She will then privately lease the motor car at an annual cost of £26,540.
Other information
The amount of business journeys that will be driven by Sammi will be immaterial and can therefore be ignored.
Sammi’s current annual director’s remuneration is £120,000. She has no other taxable income. Smark Ltd prepares its accounts to 5 April, and pays corporation tax at the full rate of 24%. The lease of the motor car will commence on 6 April 2012.
Required:
(a) Advise Sammi Smith of the income tax and national insurance contribution implications for the tax year 2012–13 if she (1) is provided with the company motor car, and (2) receives additional director’s remuneration of £26,000. (5 marks)
(b) Advise Smark Ltd of the corporation tax and national insurance contribution implications for the year ended 5 April 2013 if the company (1) provides Sammi Smith with the company motor car, and (2) pays Sammi Smith additional director’s remuneration of £26,000.
Note: you should ignore value added tax (VAT). (5 marks)
(c) Determine which of the two alternatives is the most beneficial from each of the respective points of view of Sammi Smith and Smark Ltd. (5 marks) (Total: 15 marks)
4
Firstly plc
On 31 December 2012 Joe Jones resigned as an employee of Firstly plc, and on 1 January 2013 commenced employment with Secondly plc. Joe was employed by both companies as a financial analyst. The following information is available for the tax year 2012–13:
Employment with Firstly plc
(2) Joe contributed 6% of his monthly gross salary of £11,400 into Firstly plc’s HM Revenue and Customs’ registered occupational pension scheme.
(3) On 1 May 2012 Firstly plc provided Joe with an interest free loan of £120,000 so that he could purchase a holiday cottage. Joe repaid £50,000 of the loan on 31 July 2012, and repaid the balance of the loan of £70,000 when he ceased employment with Firstly plc on 31 December 2012.
(4) During the period from 6 April 2012 to 31 December 2012 Joe’s three-year-old daughter was provided with a place at Firstly plc’s workplace nursery. The total cost to the company of providing this nursery place was £11,400 (190 days at £60 per day).
(5) During the period 6 April 2012 to 31 December 2012 Firstly plc paid gym membership fees of £1,050 for Joe.
(6) Firstly plc provided Joe with a home entertainment system for his personal use costing £4,400 on 6 April 2012. The company gave the home entertainment system to Joe for free, when he left the company on 31 December 2012, although its market value at that time was £3,860.
Employment with Secondly plc
(1) From 1 January 2013 to 5 April 2013 Joe was paid a salary of £15,200 per month. (2) During the period 1 January 2013 to 5 April 2013 Joe contributed a total of £3,000
(gross) into a personal pension scheme.
(3) From 1 January 2013 to 5 April 2013 Secondly plc provided Joe with living accommodation. The property has an annual value of £10,400 and is rented by Secondly plc at a cost of £2,250 per month. On 1 January 2013 Secondly plc purchased furniture for the property at a cost of £16,320. The company pays for all of the running costs relating to the property, and for the period 1 January 2013 to 5 April 2013 these amounted to £1,900.
(4) During the period 1 January 2013 to 5 April 2013 Secondly plc provided Joe with 13 weeks of childcare vouchers costing £100 per week. Joe used the vouchers to provide childcare for his three-year-old daughter at a registered nursery near to his workplace.
(5) During the period 1 January 2013 to 5 April 2013 Joe used Secondly plc’s company gym which is only open to employees of the company. The cost to Secondly plc of providing this benefit to Joe was £340.
(6) During the period 1 January 2013 to 5 April 2013 Secondly plc provided Joe with a mobile telephone costing £560. The company paid for all of Joe’s business and private telephone calls.
Required:
(a) Calculate Joe Jones’ taxable income for the tax year 2012–13. (17 marks)
(b) (i) Briefly explain the basis of calculating Joe Jones’ PAYE tax code for the tax year 2012–13, and the purpose of this code; (2 marks)
Note: your answer to both sub-parts (i) and (ii) should be confined to the details
that are relevant to Joe Jones. (Total: 25 marks)
5 William
Wong
You are a trainee accountant and your manager has asked for your help regarding the following two taxpayers.
(a) William Wong
William Wong is the finance director of Glossy Ltd. The company runs a publishing business. The following information is available for the tax year 2012-13:
(1) William is paid director’s remuneration of £2,400 per month by Glossy Ltd. (2) In addition to his director’s remuneration, William received two bonus
payments from Glossy Ltd during the tax year 2012-13. The first bonus of
£22,000 was paid on 30 June 2012 and was in respect of the year ended 31 December 2011. William became entitled to this bonus on 15 March 2012. The second bonus of £37,000 was paid on 31 March 2013 and was in respect of the year ended 31 December 2012. William became entitled to this second bonus on 15 March 2013.
(3) From 6 April 2012 until 31 December 2012 William used his private motor car for business purposes. During this period William drove 12,000 miles in the performance of his duties for Glossy Ltd, for which the company paid an allowance of 30 pence per mile. The relevant HM Revenue and Customs authorised mileage rates to be used as a basis of an expense claim are 45 pence per mile for the first 10,000 miles, and 25 pence per mile thereafter. (4) From 1 January 2013 to 5 April 2013 Glossy Ltd provided William with a
diesel powered company motor car with a list price of £46,000. The motor car cost Glossy Ltd £44,500, and it has an official CO2 emission rate of 226 grams per kilometre. Glossy Ltd also provided William with fuel for his private journeys.
(5) William was unable to drive his motor car for two weeks during February 2013 because of an accident, so Glossy Ltd provided him with a chauffeur at a total cost of £1,800.
(6) Throughout the tax year 2012-13 Glossy Ltd provided William with a television for his personal use that had originally cost £3,825.
(7) Glossy Ltd has provided William with living accommodation since 1 January 2011. The property was purchased in 1998 for £90,000, and was valued at £183,000 on 1 January 2011. It has an annual value of £10,400. (8) Glossy Ltd pays an annual insurance premium of £680 to cover William
against any liabilities that might arise in relation to his directorship.
(ii) Calculate William’s employment income for the tax year 2012-13. (13 marks)
(b) Chai Trim
Chai is paid an annual salary of £35,000 by Vigorous plc, which runs a health club. Vigorous plc needs to prepare a form P11D for Chai. The following information is relevant:
(1) Chai was employed by Vigorous plc throughout 2012-13.
(2) During 2012-13 Vigorous plc provided Chai with a two-year old company van (which was available for personal use), although the van was unavailable during the period 1 August to 30 September 2012. The company also paid for all of the private petrol.
(3) Throughout 2012-13 Vigorous plc provided Chai with free membership of its health club. The normal annual cost of membership is £800. This figure is made up of direct costs of £150, fixed overhead costs of £400 and profit of
£250. The budgeted membership for the year has been exceeded, but the health club has surplus capacity.
Required:
(i) Explain what is meant by the term ‘P11D employee’. (3 marks)
(ii) Calculate the benefit figures that Vigorous plc will have to include on the
form P11D for Chai for 2012-13. (3 marks)
(iii) Explain how the income tax liability in respect of benefits is collected by
HM Revenue & Customs. (3 marks)
(Total: 25 marks)
6 Andrew
Zoom
Andrew Zoom is a cameraman who started working for Slick-Productions Ltd on 6 April 2012. The following information is available in respect of the year ended 5 April 2013:
(1) Andrew received gross income of £50,000 from Slick-Productions Ltd. He works a set number of hours each week and is paid an hourly rate for the work that he does. When Andrew works more than the set number of hours he is paid overtime.
(2) Andrew is under an obligation to accept the work offered to him by Slick-Productions Ltd, and the work is carried out under the control of the company’s production manager. He is obliged to do the work personally, and this is all performed at Slick-Productions Ltd’s premises.
(3) All of the equipment that Andrew uses is provided by Slick-Productions Ltd. Andrew has several friends who are cameramen, and they are all treated as self-employed. He therefore considers that he should be treated as self-employed as well in relation to his work for Slick-Productions Ltd.
Required:
(a) List those factors that indicate that Andrew Zoom should be treated as an employee in relation to his work for Slick-Productions Ltd rather than as self-employed.
Note: you should confine your answer to the information given in the question.
(b) Calculate Andrew Zoom’s income tax liability and national insurance contributions for the tax year 2012–13 if he is treated:
(i) As an employee in respect of his work for Slick-Productions Ltd;
Note: You are not required to calculate employers’ national insurance
contributions. (3 marks)
(ii) As self-employed in respect of his work for Slick-Productions Ltd.
(3 marks)
(c) Explain how Andrew can appeal against an HM Revenue & Customs amendment to his return. Your answer should include an outline of the four
tracks to which appeals can be listed. (5 marks)
(Total: 15 marks)
7
Simon House
On 1 May 2012 Simon House purchased a derelict freehold house for £127,000. Legal fees of £1,800 were paid in respect of the purchase.
Simon then renovated the house at a cost of £50,600, with the renovation being completed on 10 August 2012. He immediately put the house up for sale, and it was sold on 31 August 2012 for £260,000. Legal fees of £2,600 were paid in respect of the sale.
Simon financed the transaction by a bank loan of £150,000 that was taken out on 1 May 2012 at an annual interest rate of 6%. The bank loan was repaid on 31 August 2012. Simon had no other income or capital gains for the tax year 2012–13 except as indicated above.
Simon has been advised that whether or not he is treated as carrying on a trade will be determined according to the six following ‘badges of trade’:
(1) Subject matter of the transaction. (2) Length of ownership.
(3) Frequency of similar transactions. (4) Work done on the property.
(5) Circumstances responsible for the realisation. (6) Motive.
Required:
(a) Briefly explain the meaning of each of the six ‘badges of trade’ listed in the question.
Note: You are not expected to quote from decided cases. (3 marks)
(b) Calculate Simon House’s income tax liability and his Class 2 and Class 4 national insurance contributions for the tax year 2012–13, if he is treated as carrying on a trade in respect of the disposal of the freehold house. (8 marks)
(c) Calculate Simon House’s capital gains tax liability for the tax year 2012–13, if he is not treated as carrying on a trade in respect of the disposal of the freehold
house. (4 marks)
8
Na Style
Na Style commenced self-employment as a hairdresser on 1 January 2010. She had tax adjusted trading profits of £25,200 for the six-month period ended 30 June 2010, and
£21,600 for the year ended 30 June 2011.
The following information is available for the tax year 2012–13:
Trading profit for the year ended 30 June 2012
(1) Na’s statement of profit or loss for the year ended 30 June 2012 is as follows:
Note £ £
Income 61,300
Expenses
Depreciation 1,300
Motor expenses 2 2,200
Professional fees 3 1,650
Property expenses 4 12,900
Purchases 5 4,700
Other expenses 6 16,550
–––––––
(39,300) ––––––––
Net profit 22,000
––––––––
(2) Na charges all the running expenses for her motor car to the business. During the year ended 30 June 2012 Na drove a total of 8,000 miles, of which 7,000 were for private journeys.
(3) The figure for professional fees consists of £390 for accountancy and £1,260 for legal fees in connection with the grant of a new five-year lease of parking spaces for customers’ motor cars.
(4) Na lives in a flat that is situated above her hairdressing studio, and one-third of the total property expenses of £12,900 relate to this flat.
(5) During the year ended 30 June 2012 Na took goods out of the hairdressing business for her personal use without paying for them, and no entry has been made in the accounts to record this. The goods cost £250, and had a selling price of £450.
(6) The figure for other expenses of £16,550 includes £400 for a fine in respect of health and safety regulations, £80 for a donation to a political party, and £160 for a trade subscription to the Guild of Small Hairdressers.
(7) Na uses her private telephone to make business telephone calls. The total cost of the private telephone for the year ended 30 June 2012 was £1,200, and 20% of this related to business telephone calls. The cost of the private telephone is not included in the expenses figure of £39,300 shown in the above statement of profit or loss.
(8) Capital allowances for the year ended 30 June 2012 are £810.
Other information
(2) Na’s payments on account of income tax in respect of the tax year 2012–13 totalled £3,200.
Required:
(a) Advise Na Style of the advantages and disadvantages of choosing 30 June as her
accounting date, rather than 31 March. (5 marks)
(b) Calculate the amount of trading profits that will have been assessed on Na Style for the tax years 2009–10, 2010–11 and 2011–12 respectively, clearly identifying
the amount of any overlap profits. (5 marks)
(c) Calculate Na Style’s tax adjusted trading profit for the year ended 30 June 2012. Note: your computation should commence with the net profit figure of £22,000, 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. (8 marks)
(d) (i) Calculate the income tax payable by Na Style for the tax year 2012–13.
(6 marks)
(ii) Calculate Na Style’s balancing payment for the tax year 2012–13 and her payments on account for the tax year 2013–14, stating the relevant due dates.
Note: you should ignore national insurance contributions. (3 marks)
(e) Advise Na Style of the consequences of not making the balancing payment for the tax year 2012–13 until 31 May 2014.
Note: your answer should include calculations as appropriate. (3 marks) (Total: 30 marks)
9
Domingo, Erigo and Fargo
Domingo, Erigo and Fargo Gomez are three brothers. The following information is available for the tax year 2012–13:
Domingo Gomez
(1) Domingo is aged 67.
(2) During the tax year 2012-13 he received the state pension of £5,500 and a private pension of £2,800.
(3) In addition to his pension income Domingo received building society interest of
£14,400 and interest of £600 on the maturity of a savings certificate from the National Savings and Investments Bank during the tax year 2012–13. These were the actual cash amounts received.
(4) During the tax year 2012–13 Domingo made donations of £300 (gross) to local charities. These were not made under the gift aid scheme.
Erigo Gomez
(1) Erigo is aged 56.
(2) He is employed as a business journalist by Economical plc, a magazine publishing company. During the tax year 2012–13 Erigo was paid a gross annual salary of £36,000.
(4) During June 2012 Economical plc paid £11,400 towards the cost of Erigo’s relocation when he was required to move his place of employment. Erigo’s previous main residence was 140 miles from his new place of employment with the company. The £11,400 covered the cost of disposing of Erigo’s old property and of acquiring a new property.
(5) Erigo contributed 6% of his gross salary of £36,000 into Economical plc’s HM Revenue and Customs’ registered occupational pension scheme.
(6) During the tax year 2012–13 Erigo donated £100 (gross) per month to charity