TX Kaplan Exam Kit FA2022 compressed (2) (1)

PDF.js PDF.js viewer viewer 06/03/2023, 19:35 ACCA Applied Skills Taxation (TX-UK) (Finance Act 2022) EXAM KIT For June 2023 to March 2024 examination sittings KAPLAN) PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…red-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https ://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2I-dist/1.0....red-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page 1 of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) British Library Cataloguing-in-Publication Data A catalogue record for this bookis available from the British Library. Published by: Kaplan Publishing UK Unit 2 The dusiness Centre Molly Millar’s Lane Wokingham Berkshire RG41 202 ISBN: 978-1-83996-145-8 © Kaplan Financial limited, 2022 Printed and bound in Great Britain The text in this material and any others made available by any Kaplan Group company does not amountto advice on a particular matter and should not be taken as such, No reflance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties, Please consult your appropriste professional adviser as necessary, Kaplan Publishing Limited and all other Kaplan group cornpanies expressly disclairn all liability to any person in respect of any losses or other caims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. Al rights reserved, No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing. Acknowledgements Thase materials are reviewed by the ACCA examining team. The objective of the review is to ensure that the material property covers the syllabus and study guide outcomes, used by the examining tearm in setting the exams, in the appropriate breadth and depth. The every eventuality, combination or application of examinable topics Agproved Content, Nor docs the review comprise 2 detailed technical Approved Content Provider has its own quality sssurence processes in rewiew does not ensure that is addressed by the ACCA check of the content as the place in this respect- The past ACCA examination questions are the copyright of the Association of Chartered Certified Accountants. The original answers to the questions from June 1994 onwards were produced by the examiners themselves and have been adapted by Kaplan Publishing, P.2 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…red-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....red-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 2 2 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 CONTENTS Page Index to questions and answers PSs Analysis of past exams P15 bam tachinique Pd Exam: specific information P.23 Kaplan's recommended revision approach P.27 Kaplan's TX examination revision plan ?.29 Tax rates and allowances P39. Time limits and election dates P.4S Section 1 Practice income tax and national insurance questions 2 Practice chargeable gains questions 3 Practice inheritance tax questions 111 4 Practice corporation tax questions 133 5 Practice value added tax questions 185 6 Answers to practice income tax and national insurance questions 213 7 Answers to practice chargeable gains questions 409 8 Answers to practice inheritance tax questions 477 9 Answersto practice corporation tax questions 513 30s Answers to practice value added tax questions 627 il Specimen exam questions 665 Answers to specimen exam questions 681 iz KAPLAN PLIBLISHING 1 79 PS https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…red-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....red-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 3 3 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK>: TAXATION (FA2022) Key features in this edition In. addition to providing a wide ranging bank of real past exam questions, we have also included In this edition: An analysis of all of the recent examinations. Exam specific information and advice on exam technique. * Our recommended approach to make your revision for this particular subject as effective @S possible. This includes step by step guidance on how best to use our Kaplan material {study text; pocket notes and exam kit) at this stage in your studies, 4 Wealth of past real examination questions adapted to the new examination style with enhanced tutorial answers snd packed with specific key anawer tips, technical tutorial notes and exam technique tips from our experienced tutors. ‘Complementary online resources including full tutor debriefs and question assistance to point youn the right direction when you got stuck. You will find a wealth of other resources to help you with your studies on the following sites: www. mykaplan.co. uk wwaw.accagiobal.com/en/student.html Quality and securacy are of the utmost importance to vs so if you spot an error in any of our products, please send an email to mykaplanreporting@kaplan.com with full details, of follow the link to the feedback form in MyKaplan. Our Quality Coordinator will work with our technical teem to verify the error and take action to ensure it is corrected in future editions. Pa KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…red-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....red-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 4 4 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 INDEX TO QUESTIONS AND ANSWERS INTRODUCTION All TX exams have been computer-based exams (CBEs} from the June 2019 sitting, if you would like further information on sitting a CBE TX examinetion please contact either Kaplan or the ACCA. As a result of changes to the TX exam format over time, the majority of past exam questions in their Original format sre not representative of current TX examination questions, The questions cantalned In this exam kik are therefore based on past exam questions but it has been necessary to adapt them to ensure that they are representative of questions in the examinations The adaptations have been made to reflact the new style of exam, new legislative changes in racent Finance Acts, Tax law changes and IFRS® Standards terminology. We have also Included new topics brought into the syllabusin some questions. Many of the questions within the kit are pest ACCA exam questions, and the more recent questions (from 2005) are labelled as such in the index. Nove that Ifa question within this kit has been adapted of changed In. any way from the original version, this ts Indicated In the end column of the Index below with the mark (A). Also included are the marking schemes for past ACCA examination questions to assist you in understanding where marks are earned and the amount of time to spend on particulier tasks, Note that if a question has been changed from the original version, it will have also been necessary to change the original ACCA marking scheme. Therefore, ifa question is marked as ‘ADAPTED’ you should assume that this also applies to the marking scheme, & number of questions inchided in the exam kit are referenced to two examination sittings e.g, March/June 2017, This is.as a result of a change in policy made by the ACCA regarding the release of examination questions. Previously, examinations were released In thelr entirety. The ACCA now release a selection of questions from the March/June anc September/December examinations, Therefore, questions referenced as such are taken from the sample released by the ACCA KAPLAN PUBLISHING P.5 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…red-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....red-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 5 5 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION (FA2022) KEY TO THE INDEX ANSWER ENHANCEMENTS We have edded the folowing enhancements to the answers in this exam kit: Key answer tips Af answers include key answer tips to help your understanding of each question. . 2 Tutorial note AS answers include tutorial notes to explein some of the technical peints in more detail. Tutor’s top tips For selected questions, we ‘wak tiroug!) the answer’ giving guidance on how wo approach the Questions with helpful ‘tips from a top tutor’, together with technical tutor notes These answers are indicated with the ‘footsteps’ icon in the index. Within the questions in the exam kit you will see the fallowing Icons, shown in the question requirements: bel = word processing S% = spreadsheet The ons highlighting the constructed response workspace tool alongsige some of the questions are for guidance onty — Ris important to recognise that ¢ach question is different and that the answer space provided by ACCA in the exarn is detenmined by both the technical content of the question as well as the quality assurance processes ACCA undenakey to ensure the student is provkied with the most appropriate type of workspace. P.6 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…red-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....red-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 6 6 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 INDEX TO QUESTIONS AND ANSWERS ONLINE ENHANCEMENTS | Tce Answer debrief For selected questions, we recommend that they are to be completed in full exam conditions (L@, property timed itt 4 closed book environment). in addition to the examining team’s technical answer, enhanced with key answer tips and tutonal notes inthis exam kit, online youcan find an answer debrief by a top tutor that: . works through the question in full © explains key elernents of the answer, and ° ensures that the easy marks are obtained as quickly as possible, These questions are indicated with the ‘video’ icon in the index, Answer debriefs will be available on MyKaplan at: www. mykaplan.co.uk KAPLAN BUSLISHING P.7 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…red-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....red-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 7 7 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS Page number. SECTION A OBJECTIVE TEST QUESTIONS Question Answer 1 212 Past exam (Adapted) SECTION B OBJECTIVE TEST CASES income tax basics and employment income | 96 Philip & Charles eg 28 Sis Dec alia) $7 Kim Baxter fa 23 254 Jun 08 (A) | Income tax basics and income from self-employment “98 Foo Dee 31-256 = Dec 06 [A) | SECTION C CONSTRUCTED RESPONSE QUESTIONS Income tax basics and employment income % Jason / ret] 100 = Poppy 33 259 «= Mar/July20 34 263 Mar/Jun 22 101 ion ie] 35 267 = Mar/July20 102 Patience eB 36 276.2 38 275 = Sep/Dec. 19 103 = Kagari Mar/Jun 26 (A} 104 Dall wy 39 278 = Sep/Dec 17 (A) 105s Richard Iryer ee 41 zis a] 42 286 == Mar/Jun 27 (A} | 44 290 Mar/Jun 19 (A} 45 292 Sep/Dec 18 (A) 46 297 106 = Petula 107 — Tonle 108 Kat 68) jun 24 (a) income tax basics and income from self-employment 108 Carol Courter {A} 110 = idris Williams ‘| 47 299 111s Ethe! & 48 302 112. 113. Robinette George fe 49 $0 305 305 Seg/DeclS Marflun 26{A} | 114 Fleur 51 312 Mar/Jun 22 11S Paul 53 336 2 MarfJun22 116 Dembr P.8 | S3 324 Mar/Jun 291A) KAPLAN | OUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…red-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....red-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 8 8 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 INDEX TO QUESTIONS AND ANSWERS Page number Past cxem (Adapted) Question Answer te Fee 54 323. & 56 327 = Dec 09 (A) & 56 331 Mar/Jun 17 (A) ro] 58 59 334 338 Sap/Dee 21 Dec 13 (A) fe 61 342 Marflun21 62 346 (A) 350 = Sep 164A} Income tax basics and income from self-employment 127 138 Fang, Hong and Kang Na Style 119° thi 120 121 Jade Richard Feast 122 Alfred and Amaia Dec 13 Trading losses 123 Norma 124 Ashura & 63 425 DeeZyne & 64 354 Jun OS (A) 126 Samantha Fabrique re?) 65 356 Dec 07 (A) 127. Michacl and Sean & &6 360 Jun 12 & 67 365 Sept/Dec 20 tw 69 70 371 376 = Sep/Dec 21 Jun 10 (4) re 2 72 382 Sept/Dec 15 385 = Jun 13a) Partnerships 128 © Sam, Tarn and Ure 129 130 Amanda Avy Man and Bim Men 131 Daniel, Francine and Gregor Pensions and NIC 132 hn Beach Ay 73 133 134 Ann, Basil and Chloe Jack @ @ 74 75 390 395 Dec OB {A) Dec 164A) 76 399 Jun G8 {A) Self-assessment 1350 Pi Casso 136 Ernest Vader By 7 403 Jur 10 (A) 137 Sophie Shape f& 73 406 Jun 15 SP (A) KAPLAN PUBLISHING Py https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…red-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....red-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 9 9 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) PRACTICE CHARGEABLE GAINS QUESTIONS Page number Past eam SECTION A OBJECTIVE TEST QUESTIONS Question Answer 73 409 ag 824 (Adapted) SECTION B OBJECTIVE TEST CASES individuals capital gains tax 172. Michael Chin 173. Bo 174 iphabet Ltd 175s JorgeJurg 176 Albert and Charles 177. Zoyla 278 Maliand Goma 38] Jun 05 (a) 90 427 —- Dec 09 (A) 92 430 © Jun 14 (A} 93 432 Dec 11 [A) fo Be: 94 434 Det 13 (A) ef) ae 437 = Dee 16 (A) 38 438 Mar/fjun 19 (A} | 100 440 = Dec 08 (A) a8] 101 443 Sen 164A) Companies — chargeable gains 179° HawkLte 180 Kat itd SECTION CCONSTRUCTED RESPONSE QUESTIONS individuals= capital gains tax 181. David and Angela Brook 122 Bill Ding 183 184 185 103 446 = Dec 07 (A) 3 104 aS0 Jerome Ginger and Nige! ge kg 104 105 453 = Mar/Jun 16 (A} $56 Jun 13 (A} Mick Stone re] 106 460 = jun 14 {A} 186 = Ruby er | 107 463 = Sepr/Dec 15 (4) 187 Eg 108 165 109 469 Sep/Dec 22 120 473, jun 15 —-Daljeet | Conteetiien ~Geremtle gains 188 fogo itd and Nette Ltd 189 Luna itd P10 fd KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 10 10 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 INDEX TO QUESTIONS AND ANSWERS PRACTICE INHERITANCE TAX QUESTIONS Page number Past exam Question 114 Answer a7? 118 426 ® 120 48? Dec 124A} is 2 hoe 121 490 = Dec 13 {A} SECTION A OBJECTIVE TEST QUESTIONS {Adapted} SECTION B OBJECTIVE TEST CASES 220 = Lebna and tutu 231 = Tom Mar/iun 2S (A) 212 Afiya 213 Roma a?) 123 493 Dee 16 4A) 224 Adana & 125 495 Sep 26 (A) SECTION C CONSTRUCTED RESPONSE QUESTIONS 215 Blu @ 127 497 Bec 12 {A} 276 = Jack and Tom @ 128 501 Dec 12 (A) 22? Aurora & 129 504 mn 278 Kendra Older ® 130 509 Jun 24{A) 219 James er] 134 513 = Marfhun 16 (4) 220 Marcus f® 132 $16 Sept/Dec 2015 yesse PRACTICE CORPORATION TAX QUESTIONS Page number Past exam SECTION A OBJECTIVE TEST QUESTIONS Question Answer (Adapted) 133 $19 146 539 Jun 13 (A} 148 $42. Pilot07 (A) 149 546 Jon 23 (Aj SECTION 8 OBJECTIVE TEST CASES Corporation tax basics and administration 259 Greenzone Ltd 'o 8) Relief for trading losses 260 © Loser Ltd With group aspects 261 KAPLAN Deutsch Ltd PUBLISHING 3 P.il https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 11 11 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Page number Past exam Question Answer (Adapted) SECTION C CONSTRUCTED RESPONSE QUESTIONS Corporation tax basics and administration 262 HarhourLtd 263. 151 549 Aoede Ltd, Blanca Ltd and Charon Lid 152 554 264 Mixture‘Ltd 154 558 Mar/Jun 22 265 Online Ltd 155 563 Mar/dun 17 {A} 266 Stretched Ltd 156 567 fun 0S (A) 267 Starfish itd fy 157 569 Dec 11 JA) ROHR usa S74 Sept/Dec 19 (A) 269 —- E-Commerce ple a 161 578 = Dec 14 A) 270 @ 164 582 Sept/Dec 15 {4} rs] 165 587 Sep/Dec 17 (A) 272 «= Wretched Ltd 273.0: Retrokad w @ 167 163 590 = ec 16 {A) $94 un 15 274 = Mooncake Ltd @ 171 599 = Mar/Jun 21 275 = Muusie ple 173 503 Dee 05 |A) 276 lump itd 174 BOS Nar/lon 16 {A) 272 Ashik @ 176 509 Sep/Dec 18 (Al 278 lueless itd & 179 623 = Dec 12 {A) @ 131 612 un 24 (A) 183 523 Mar/huly 20 268 = Maison itd Lucky Ltd af fy Sept/Bec 20 (A) Mar/tun 19 {A} Relief for trading losses 271 tast Orders itd With group aspects 279 «= Long itd ard Road itd 280 = Lena Ltd, Mekong Ltd and Mile Ltd P12 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 12 12 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 INDEX TO QUESTIONS AND ANSWERS PRACTICE VALUE ADDED TAX QUESTIONS Page number Past exam Question Answer 185 627 193 635 SECTION A OBJECTIVE TEST QUESTIONS (Adapted) SECTION B OBJECTIVE TEST CASES 303 Thidar 304 Candy Apple andSugarPium = 305 Lithograph ttd 306 Misa 307 The Whitlock Sisters 308 © Knight Ltd 309 Ardent Ltd PQS Macfie 19 (a) 636 = Dec 13 {A) 97 639 Jun 05 (A) & 198 641 Sep 16 {A) & 200 643 Jun 12 {A) ie 2) 2 202 204 645 Juan 23 (A) 647 = Dec 16 {A} SECTION C CONSTRUCTED RESPONSE QUESTIONS 310 = Garfield 206 650 207 208 652A) 653 Jun 07 (A) & 209 654 314 = Tardyple @ 209 656 = Dec 14 {A} 315 & 210 659 = Sept/Dec 15 211 661 = Juni 321 312 “Victor Style Denzil Dyer 333 Silverstone Ltd 316 KAPLAN Smarttd Zia &® 4) Marfiun 16 (A) Dec 12{A) SUSLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 13 13 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION (FA2022) P.14 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 14 14 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANALYSIS OF PAST EXAMS The table below summarises the key topics that have been tested In recent exams. Q The question references are to the nurnber of the question in this edition of the exam kit. ¥ Refers to questions which have not been induded in the kit due to. similarity to other recent questions, * — Refers to topics thet were included in the question when originally set, but with the adaptation of the question tothe new style exam, this topic element has been removed from this question in the exam kit. Principles of taxation/Ethics: Tax avoidance vs evasion Income tax Exempt income Q107 Basic incorne tax computation Savings income Dividend income Child benefit tax charge As Residence Quis Q120 Qidi Q107 Reduction of PA Property income Qics Qit3 Q107 Qi03 aici Q203 Qin Qidl Q1is Q329 ain Q107 Qualifying interest Employed individual Employed vs. self- Q107 Salary and bonus § 8 employed Qiti Q112 Exempt benefits quis Qi22 Q422- living accommodation Qii2 Payroll gwing Beneficial loan g &% Qi01 Car and fuel benefit Qi2zs Use/gift of assets Mileage allowance Professional subscriptions PAYE system Q107 Qin 0700 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 15 15 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Adjustment to profits Qi12 Qui2 Capital allowances) Basis of assessment rules Q122 Qi22 Qi20 120 Qiis Qi20 0129 Q100 128. Partnerships ~ a#ocation . Q128 Tax planning Qi1é Pensions 128 Pension Income Occupational pension Personal pension aids Qi16 101 Qi01 Q128 contributions Annual allowance Income tax losses Relief against income National insurance QioL Gate-1 Class2 Qi20 Class4 Capital gains Bask CGT computation Exempt assets Shares insurance for destroyed ails aii O14 Q103 at7s Q178 Qirs assets Husband and wife ai7s Quis Capital losses ai7s Planning Reliefs Business asset disposal relief Private residence relief Rollover relief ‘$el-assessment individual Qi78 a2i7 Q18a Compliance checks. Qu2 Interest and penalties Record retention a2 P16 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 16 16 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 AMALYSIS OF PAST EXAMS c Metin inheritance tax PETs Exemptions: Estate computation Due dates Transfer of nil rate band Residence nil rate band . Qi Q210. | Qi03 Q210 Q114 Q217 Q210 Q237 Q2i7 Qi14 Corporation tax periods Adjustment to profits Q277 Capital sllawances Lease premiums Basic TTP computation Property income Q277 280 B 88 Residence Q277 Definition of accounting | Q277 Qualifying donations 277 qu77 OBE Interest income Chargeable gains 0268 Q262 | Q274 | Q188 Q280 | O262 0274 Q264 Q268 | O101 | Q262 | Q274 | O18 | Oil 268 0262 0264 0263 0188 0268 Q262 | G274 | cigs Q274 Corporation tax losses 277 O77 az75 | mss gE Capital losses Trading tosses Q274 Property losses Q274 Q277 3 Group relief Gains groups é Groups ase Seltassessment — companies Quartesly instalments Q280 264 Value added tax KAPLAN PUBLISHING S888 Registration ¥AT Involces Errors Ina VAT return Pre-registravion input VAT Input VAT recovery P.i? https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 17 17 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION (FA2022) P.18 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 18 18 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 EXAM TECHNIQUE GENERAL COMMENTS We recommend that you always read carefully. «the questions and examination requirements Divide the time you spend on questions in proportion to the marks on offer: - one suggestion for this examination bs to allocate 1.8 minutes to each mark available {180 minutes/100 marks), soa 10 mark question should be completed in approximately 18 minutes. - within that. try to allow time at the start to read the question and plan your answer {see P.24 below} and at the end of each question to review your arcwer and address any obvious issues. If You get completely stuck with @ question; — — flag the question in the C8E software and return to it later. Spend the last five minutes of the examination: - reading through your answers, and - making any additions or corrections. SECTION A OBJECTIVE TEST QUESTIONS Decide whether you want to attempt these at the start of the examination or at the end, Stick to the timing principle of 1.8 minutes per mark. This means that the 15 OT questions in section A (30 marks) should take 54 minutes. No credit for workings will be given in these questions; the answers will either be correct (2 marks) of incorrect {0 marks). itis stilimpartant to carry out full workings for numerical questions. For centre based exams these can be done on scrap paper or using the on-screen scratchpad. For remote invigikated eyams you will not be able to use scrap paper, but will have to use the scratchpad. it is therefore essential to practice using this functionality prior-to your exam. The ACCA practice platform can be used to familiarise yourself with using this function. Work steadity. Rushing leads to careless mistakes and questions are designed to include answers that result from careless mistakes, If you don’t know the answer, eliminate those options you know are incorrect and see if the answer becomes more obvious. Remember that there is no negative marking for am incorrect answer. After you have eliminated the options that you know to be wrong, if you are still unsure, guess, KAPLAN PUBLISHING P.19 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 19 19 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION (FA2022) SECTION B OT CASE QUESTIONS . . There is likely to be a significant ammount of information to read through for each case. You should begin by reading the OT questions that relate to the case, so that when you read through the information for the first time, you know what it is that you are required to do, Each OT question is worth two marks. Therefore, you have 18 minutes (1.8 minutes per mark) to answer the five OT questions relating to each case. It is likely that all of the cases will take the sarne length of time to answer, although some of the OT questions withina case may be quicker than other OT questions within that same case. « Once you have read through the Information, you should first answer any of the OT questions that do not require workings and can be quickly answered. You should then atternpt the OT questions that require workings utilising the remaining time for that case. . All of the tips for section A are equally applicable to each section 8 question, SECTION C CONSTRUCTED RESPONSE (LONG) QUESTIONS * The constructed response questions in section C will require a written response rather than being OT questions, Therefore, different techniques need to be used to score well. * Unless you know exactly how to answer the question, spend some time planning your answer, Stick to the question and tailor your answer to what you are asked, Pay particular attention to the verbs in the question e.g. ‘Calculate’, ‘State’, ‘Explain’, « if You do not Understand what a question is asking, state your assumptions. Even if you do not answer In precisely the way the examining team hoped, you should be given some credit if your assumptions are reasonable, . You should do everything you can to make things easy for the marker. Your answer should: ~ have @ clear structure - be concise. ttis betterto write a ittie about a lot of different points than a great deal about one or two points, . Section C Computations: - It is essential to include all your workings in your answers, questions require the use of a standard format e.g Many computational income tax computations, corporation tax computations and capital gains. — = Be sure you know these formats thoroughly before the examination and use the layouts that you see In the answers given in this book and In model answers. Adopt a logical approach and cross reference workings ta the main computation to enable the marker to find therm easily. Do not leave2 large gap between your answer and the workings. - ® You will be presented with a blank spreadsheet. A number of standard spreadsheet Functions are avaliable via the menu and tool bar for you to use when responding to the question. It is important to practise answering questions using the CBE software and to familiarise yourself with the CBE functionality, particularly the spreadsheet functions. Section C Reports, memos snd other documents: - Some questions ask you to present your answer in the form of a report, a memo, a letter or other document. P.20 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 20 20 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 EXAM TECHNIQUE ADDITIONAL TIPS ° * Do not attempt a CRE until you have completed all study material relating to it. On the ACCA website there is a CBE demonstration. It is ESSENTIAL that you atternpt this before your real CBE. You will become familiar with how to move sround the CBE screens and the way that questions are formatted, increasing your confidence and speed In the actual examination. ° There is an additional constructed response (CR) workspace on the ACCA website which you can use to practice questions from this exam kit ina CBE environment. ° Be sure you understand how to use the software before you start te examination. if in doubt, ask the assessment centre staff to explain it ta you. ° Questions are displayed on the screen and answers are entered using keyboard anc mouse. ° In addition to multiple choice type questions, CBEs will also contain other types of questions, You need to be sure you know how to answer questions of these types before you sit the examination, through practice, The types of objective test questions you could sce in your CSE ace as follows: kit question Muhiple choice Select one correct answer from a choice of four Multiple response | Select a given number of correct answers Fill In the blank Drag and drop Drop doum list Hot area KAPLAN PUBLISHING Input 8 numerical answer Match chosen answer to chosen areas of the screen 2 32 3 148 Select ane correct answer from a drop coven list 154 Salect one or more areas in an image as a correct answer {é.g. true or faise} 1 P.21 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 21 21 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION (FA2022) P.22 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 22 22 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 EXAM SPECIFIC INFORMATION THE EXAM FORMAT OF THE EXAM The exam will be in THREE sections, and will be predominantly computational. Section A will consist of 15 objective test questions, each worth 2 marks, Section B will consist of three 10 mark questions which each comprise five objective test questions of 2 marks pach, Saction C will consist of one 10 mark question and two 15 mark questions, All questions are compulsory, Nursber of marks SectionA: 15 objective test questions of 2 marks each 30 Section: 30 Three 10 mark questions covering any area of the syllabus SectionC: One 10 mark question covering any area of the syllabus 10 Two 15 mark questions, one focusing on income tax and one on corporation tax Total 30 100 The CBE will be 3 hours long and students will have up to 10 minutes to familiarise thernselves with the CBE system before starting the exam. Note that: . Section A and section B questions can be drawn from any area of the syllabus, ° The two 15 mark section C questions could Include a small number of marks in respect of other taxes, © There isno set order for the section C questions. Inthe specimen exam the 10 mark question appeared before the 15 mark questions, but the examining team could change the order, PASS MARK The pass mark for al ACCA Qualification examinations is 50%. KAPLAN PUBLISHING P.23 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 23 23 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Remote Invighated exams In certain geographical areas It may be possible for you to take your exarn remotely. This option, which is subject to strict conditions, can offer increased flexibility and convenience under certain ciroumstances. Further guidance, including the detafled requirements and conditions for taking the exam by this method, is contained on ACCA’s website at: https://www.accaglobal,com/an/en/student/exam-entry-and-administration/about-our- exams/remote-exams/remote-session-exams, html SUGGESTED APPROACH TO THIS EXAM Decide in advance whether you will attempt section A, B or C first so that you are not wasting Ume on this decision in the real examination: ‘ This is @ personal choice and you have time on the revision phase to try out different approaches, for example, if you sit mock examinations. . A common approach Is to tackle the short section A questions first, so they are out of the way, then section B and finally the longer constructed response questions in section C, « Others may prefer to tackle the longer section B and C questions first, as they will take longer than the individual questions in section A, You should complete at least one mock examination under examiiation conditions to try out your chosen approach in advance. Whatever your approach though, you must make sure that you leave enough time to attempt all questions fully and be very strict with yourself in timing each question. READING AND PLANNING Reading and planning are crucial elaments of your examination technique and it is important that you aflocate time in the examination to this. Spend ime reading the questions carefully, particularly in sections 8 and C, where questions will be based on longer scenarios than the 2 mark OTs in section A. Whatever happens, always keep your eye on the clock and do not over run on any part of any question! 4s all questions are compulsory, there are no decisions to be made about choice of questions, other than in whkh order you would tike to tackle them, Therefore, in relation to TX we recommend that you take the following approach to planning your answers: * Note down the armount of time you should spend on each part of each question. * — Decide the order in which you think you will attempt each question in sections B and C; A common approach is to tackle the question you think & the casiest and you arc most comfortable with first. Others may prefer to tackle the longest questions first, ar conversely Jeave them to the last. itis usual however for students to tackle their jeast favourite topic and/or the most difficudt question In their opinion last Whatever your approach, you must make sure that you leave enough tine to attempt all Questions fully and be very strict with yourself in timing 2ach question. P.24 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 24 24 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 EXAM SPECIFIC INFORMATION for each section € question in turn, read the requirements and then the detail of the question carefully, Always read the requirement first as this enables you to focus on the detail of the question with the specific task in mind. For section € compatational questions: Note key numbers/information and key words in the question, scribble notes to yourself to remember key points in your answer. Jot down pro formas required if applicable For section C written questions; Take notice of the format required (e.g. letter, memo, notes) and kKentify the recipient of the answer. You need to. do this to judge the level of financial sophistication required in your answer and whether the use ofa formal reply or informal bullet points would be satisfactory. Plan your beginning, middie and end and the key arces to be addressed and your use of titles and sub-titles to enhance your answer, For all section C questions: Spot the easy marks to be gained in a question and parts. which can be performed independently of the rest of the question, For example, writing down due dates of payment of tax, due dates for meking elections, Isying out basic pro formas correctly, Make sure that you do these parts first when you tackle the question. As mentioned In the ‘Exem Technique’ section earlier, you should decide in advance of the real exarnination whether to attempt section A, Bor C first. Always keep your eye on the clock and do not over run on any part of any question! DETAILED SYLLABUS The detailed syllabus and study guide written by the ACCA can be found at: www.accaglobal.com/en/student.htmi KAPLAN PUBLISHING P.25 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 25 25 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION (FA2022) P.26 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 26 26 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 KAPLAN’S RECOMMENDED REVISION APPROACH QUESTION PRACTICE IS THE KEY TO SUCCESS Success In professional examinations relles upon you acquiring a firm grasp of the required knowledge at the tuition phase. In order to be able to do the questions, knowledge is essential. However, the difference between success and fallure often hinges on your examination technique on the day and making the most of the revision phase of your studies. The Kaplan study text is the starting point, designed to provide the underpinning knowledge to tackle all questions. However, in the revision phase, pouring over text books is nat the answer, Kaplan Online knowledge checks help you consofidate your knowledge and understanding and are a useful tool to check whether you can remember key topic areas. Kaplan pocket notes are designed to help you quickly revise a topic area, however you then need to practice questions. There is a need to progress to full examination standard questions 85 soon as possible, and to tc your examination technique and technical knowledge together. The ACCA practice platform (htps://cbept.accaglobai.comn) should be used to practice questions Inthe same CBE layout as the real exam, The specimen exam and two past exarns can be accessed on the platform and these will be updated to Finance Act 2022. This allows you to practice questions with the real exam format and functionality, and to. get accustomed to the tools you will need to use to present your answers weil, Your responses to these questions will be saved, sections A and 8 will be marked automatically and you can selfanark section C using marking guides and semple answers. ttis recommended to practice as many questions as possible on the platform to familiarise yourself with how the software works, The importance of question practice cannot be over-emphasised. The recommended approach below is designed by expert tutors in the fleld, in conjunction with their knowledge of the examining team and the recent real examinations. The approach taken for the Applied Skills Level cxams is to revise by topic arca. You need to practice a3 marry questions as possible in the time you have left. QUR AIM Gur aim is to get you to the stage where you can attempt examination standard questions confidently, to time, in a closed book environment, with no supplementary help (Le. to simulate the real examination experience), Practising your examination technique on real past examination questions, in timed conditions, is also vitally important for you to assess your progress and identify areas of weakness that may need more attention In the final run up to the examination. Inorder to achieve this, we recognise that intially you may feel the needto practice some questions with open book help and exceed the required time. The approach below shows you which questions you should use to build up to coping with examination standard question practice, and references to the sources of information avallable should you need to revisit topic area in more detail, KAPLAN PUBLISHING P.27 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 27 27 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK> TAXATION (FA2022) Remember that in the real examination, all you have to.do Is: s atbempt ali questions required by the examination 4 only spend the allotted time on each question, and « get them at least SO% right! Try and practice this approach on every question you attempt from now to the real examination. EXAMINER COMMENTS We have inchaded the cxemining team's comments te the examination questions in this kit for you to see the main pitfalls that students fall into with regard to technical content However, too many times in the general section of the report, the examining team comment that students had failed due to: * “misallocation of time’ . ‘running out cf time’ and . showing signs of ‘spending too much time on an earlier question and clearly rushing the answer to a subsequent question’. Good examination technique is vital, ACCA SUPPORT For additional support with your studies please also refer to the ACCA Global website. P.28 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 28 28 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 KAPLAN’S TX EXAMINATION REVISION PLAN Stage 1: Assess areas of strengths and weaknesses Review the topic listings in the revision table plan below ¥v Determine whether or not the area is one with which you are comfortable pe Comfortable Not comfortable with the technical content with the technical content 5 Read the relevant chapter{s) in Kaplan's Study Text Attempt the Test your understanding examples if unsure of an area Attesnpt appropriste Online Knowledge checks Review the pocket notes on this area Stage 2: Practise questions Foflow the order of revision of topics as recommended in the revision table plan Selow and attempt the questions in the order suggested. Note that although the plan is organised into different subject areas, the real examination questions will cover more than one topic, and therefore some parts of the examination questions set below will be on topics covered later in the revision pian. For each topic listed below you must also practice a selection of objective test questions covering thet topic. Do bear in mind that some of the questions in this kit will take longer than 3.6 mites Bach. Try to avold referring to text books and notes and the model answer until you have completed your attempt, Try to answer the question in the allotted time. Review your attempt with the model answer and assess how much of the answer you achieved in the allocated examination time, KAPLAN PUBLISHING P.29 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 29 29 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (F42022) FIR In the self-assessment box below and decide on your best course of action. Comforta ble with question attempt Not comfortable with question attempts ] Foous on these areas by: * Reworking test your understanding exarriples in Kaplan’s Study Text . Revisiting the technical content fram Kaplan's pocket notes . Working any remaining questions on that area in the exam kit . Only revish when comfortable with | questions on a® topic areas Reattempting an examination standard question in that srea, on 8 | timed, cosed beck bass Note that: The ‘footsteps questions’ give guidance on exam techniques and how you Should have approached the question. The ‘answer debrief’ questions have an online debrief wherea top tutor works through the Question in full, explains key elements of the answer and how to gain marks, Stage 3: Final pre-examination revision We recommend that you atternpt at least one full mock examination containing a set of previously unseen examination standard questions. it is mpertant that you get @ feel for the breadth of coverage of a real examination without advanced knowledge of the topic orcas covered — just a5 you wil expect to see on the real exarninstion day. ideally this mock should be sat In timed, closed book, real examination conditions and could be; . a mock examination offered by your tuiticn provider and/or . the specimen exam in the back of this exam kit and/or « the last released examination (available shortly afterwards on My<aplan and upcated to the relevant Finance Act, if necessary). P_30 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 30 30 of of 744 744 5 (= Employment https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn -mykaplan.co .uk/d21/common/assets/pdfjs-d2I|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 KAPLAN PUBLISHING benefits assessable income and 2 2 2 1 1 Chapter | Chapter = Residence tax computation Personal income Text | Topic note Sudy | Pocket | THE DETAILED REVISION PLAN Questions 113{a) 104(b} 106 130{a) 104{a) 107{a) Section B/C to attempt ts employed or self-employed and the fa} tests the rules for determining whether an of this decision. consequences individual 123 on this area, Fotow this with Q106 which Is also a past exam question benefits. Start with Q104 (b} which covers 2 number of employment There are many questions on this srea. the exam. A popular exam topic, aimost guaranteed to form part of the UK are reletivety cornplex. Revise the rules from the pocket notes and practice this question, along with the relevant questions In Section A, where residence is most commonly tested. to practice4 cross-section of these questions. The. rules to determine whether an individual is resident in are comfortable with the pro forma. Vanous aspects of incorne tax will also inevitably be tested in section A and possibly section B as weil, and itis important: Section C in the examination will include et least one Question focusing On income tax, and It is crucial that you of tax. Review the ayout of an income tax computation and rates Tutor guidance P31 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 Page Page 31 31 of of 744 744 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn -mykaplan.co .uk/d2|/common/assets/pdfjs -d2I-dist/1.0...ed-pdf&fullscreen =d2I-fileviewer-ren dered-pdf-dialog&height=718#0 P.32 — assessment Basis of allowances and cash basis: capital 3 7as = Adjusted trading profit, including 3 7 — Badgesof 5 3&4 1 4 Study | Pocket Text note Chapter | Chapter — Property Topic TX=UK: TAXATION (FA2022) Questions 117(ai( 118\a) 122{a) 110 106 122 Section B/C to attempt questions: The opening year rules are commonly tested and these , questions provide good practice. An adjustment of profits calculation ts almost certain to be tested in the exam, although it may form part of @ sole tradeér/partnership of corporation tox question. Q121 (a) tests many of the typical adjustments you may see. Q110 tests the cash basts of assessment. You may benefit from practising the test your understandings from the study text before attempting these You may be asked to apply the rules in the exam. Revise the badges of trade rules fron the pocket notes. income for an individual in the examination. questions. it is often tested as one of a few sources of Property income is a small part of these income tax from the case information. information that you need for each individual question ts an example cf a section 6 case OF question. It Is QS7 important that you practice these before your examination 85 you aré Ekely to find ® takes practice to isolate the Tutor guidance KAPLAN PUBLISHING Self-assessment PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 Page Page 32 32 of of 744 744 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn -mykaplan.co .uk/d2|/common/assets/pdfjs -d2I-dist/1.0...ed-pdf&fullscreen =d2I-fileviewer-ren dered-pdf-dialog&height=718#0 KAPLAN PUBLISHING = Pensions | — Partnerships for Individuals — Trading losses insurance Tople Questions 6 of C 134 133 The allocation of profits between partners is a relatively Straightforward computation, but doas require practice. 128[a) various ways this topic could be tested. questions listed here provide excellent practice of the: Like National Insurance, pensions & a topic which Is likely to form a'small part of a longer question, however the two to be farnilier with each of the reliefs. topic and & is important Losses are a popular examination 130{b} and a selfThis question covers NICs for both an emptoyee employed individual. These questions cover the range of ways losses can be tested —in an ongoing business, losses in the opening years and losses on cessation. Q126 also tests the cap on Income tax reliefs. It is also Wkely to be tested In SectionA. Student. Question and con provide casy marks to a well-prepored National Insurance may form part of a section Tutor guidance 10 (ch 113(b) and Section B/C to attempt 126 125 124 Chapter note il 12 Study KAPLAN'S TX EXAMINATION: REVISION PLAN PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 Page Page 33 33 of of 744 744 Tax ¢dmin for individuals https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co .uk/d2|/common/assets/pdfjs -d2I-dist/1.0...ed-pdf&fullscreen =d2I-fileviewer-ren dered-pdf-dialog&height=718#0 P.34 computation | Corporation tax {tHT) Inheritance tax of | Consolidation | income tax. — Topie note 14 23 43 10 18 3 Chapter | Chapter Text Study | Pocket TX=UK: TAXATION (FA2022) . Raving revised all of the above topics, attempt Q102, 0109 and 128, these questions incorporate many aspects of wall as the potential penalties and Interest. It is vital to ‘arn the dates for submission and payment as Administration is highly likely to be tested in sections A and B as an OT question, Tutor guidance = 220 the rates of tax. One of the 15 mark section C questions will focus on CT, and it is crucial that you are comfortable with the pro forma. There may also be a section B question and certainly as well. some section A questions Review the layout of 2 corporation bax computation and Warm up with 0215 then practice questions 219 and 220. pocket notes to revise the key facts and techniques, IHT can be tested in all three sections of the examination and therefore it is Important to study this area. Use your 215 219 of section A questionson Don't forget to practice a number income tax if you haven’t already done so. 128 _| the taxation of individuals. 102 109 135 137 atteenet Section B/C eer KAPLAN PUBLISHING Self-assessment PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 Page Page 34 34 of of 744 744 li 2644} 4 267 271 273 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn -mykaplan.co .uk/d2|/common/assets/pdfjs -d2I-dist/1.0...ed-pdf&fullscreen =d2I-fileviewer-ren dered-pdf-dialog&height=718#0 KAPLAN PUBLISHING tax losses |= ‘Corporation 1s 262 270 259 Section B/C 266 income capital allowances profits and Adjustment of Questions to attempt 14 Text Study /— Long periods of account | — Topie notes, and practice the test your understandings from the Study text IF you are not confident, before attempting these questions. Remind yourself of the layout required using the pocket key. Many students are daunted by less questions, however a systematic approach is all that js required and practice is Having revised these rules from the pocket notes, practice them using this question. income between the two periods. learn the rules regarding apportioning different types of property income for indwiduals and companies. This question covers property income for a company. In order to deal with along period of account, you need to There are minor but important differences between taxing corporation tax. Q259 is an example of a section B OT case question on this type of question. Use Q262 to check that you are clear about these differences, then attempt Q270, which is classic example of between sole traders and companics for adjustments to profits and capital allowances, It ls important to be comfortable with the differences Tutor guidance Self-assessment KAPLAN'S TX EXAMINATION REVISION PLAN PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 Page Page 35 35 of of 744 744 Groups Deferral rellefs https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn -mykaplan.co .uk/d2|/common/assets/pdfjs -d2I-dist/1.0...ed-pdf&fullscreen =d2I-fileviewer-ren dered-pdf-dialog&height=718#0 P.36 | for compenies Chargeable gains — Chattel:, shares, PRR, Business asset disposal relief for individuals | Chargeable gains '— Tax admin for a company |— Topie 21 21 19, 20& vy 16 15 & 16 188 182 181 185 176 278{b} 279(b) 13 17 18 275 276 261 Section B/C Questions to attempt a2 Chapt 16 Chapter Text Study TX=UK: TAXATION (FA2022) aspects of and test your understanding using this question, Remind yourself of the different gains rules for companies, these reliefs and provide excefient practice, are available in full is important These questions cover all Recognising which deferral reliefs apply and whether they is important that you can tackle them all. Few of these areas are technically challenging, however, it These questions demonstrate how various capital gains will be tested In one question. Revise the basic computation using the pocket notes before looking at the detailed areas, below. They are also likely to be tested in Section A. Chargeable gains could appear in section 8 orC and these questions will usually test a wide variety of the topics well as the potential penalties and interest. Administration could make up part of 3 constructed response question so you need to be prepared for this, is also highty likely to be tested in sections A and B as an OT question, It Is vical to learn the dates for submission and payment35 261 's an example of a section B case OT question. a capital gains group. determining Groups are often tested as part of a corporation tax question, Q276 tests group relicf and Q275 tests the rules for Tutor guidance KAPLAN PUBLISHING Self-assessment PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 Page Page 36 36 of of 744 744 shares Qpored 20 N/A 218 114 187 105 and the tax nules These questions test a range of subjects covered are not complex, however, the style of questions: 101 103 20 and then ensure you are comfortable with the different question styles by practicing each of these questions. styles of question using the chapter in the pocket notes, differs from the others im the kit. Look at the different Self-assessment https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn -mykaplan.co .uk/d2|/common/assets/pdfjs -d2I-dist/1.0...ed-pdf&fullscreen =d2I-fileviewer-ren dered-pdf-dialog&height=718#0 KAPLAN PUBLISHING \t is also vital that you practice Section A questions on all topics. remaining questions are avellable in the kit for additional practice for those who require more questions on some areas, P37 We have recormended an approach to build up from the basics to exarnination standard Section B and C questions using a selection of the exam kit questions. The Note that nat all of the Sections Band C questions in the exam kit are referred ta in the programme above, | Scenario style exam questions VAT could be tested in any of the three sections so it is important that you practise VAT questions from both sections, Start by reviewing the examiner’s VAT article. Then attempt this question which tests the capital gains tules for companies, including share pooting. A brief revision of the share pool and matching rules from the pocket notes may be useful. 294 306 312 314 189 Section B/C Tutor guidance 19 15817 Text | note | SWwertlons Value added tax | 24&25 /— Topie KAPLAN'S TX EXAMINATION REVISION PLAN PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 Page Page 37 37 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 nw S z & 6 %x 7 - ™ S *- https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 38 38 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TAX RATES AND ALLOWANCES Tax rates and allowances will be produced in the examination for TX for the June 2023 to March 2024 sittings which will contain the fofowing mformation, SUPPLEMENTARY INSTRUCTIONS. 1 2 3 Calculations and workings need only be made to the nearest £. _All apportionments should be made to the nearest month. All workings should be shown In Section C. INCOME TAX Basic rate £1 — £37,700 Normal rates 20% Dividend rates 8.75% Higher rate £37,701 — £150,000 40% 33.75% Additional rate £150,001 and over 45% 39.35% Savings income nil rate band ~ Bask rate taxpayers — Higher rate taxpayers Dividend nil tate band £1,000 £500 £2,000 A starting rate of 0% applies to savings income where it falls within the first £5,000 of taxable income. Personal allowence Personal allowance £12,570 Transferable amount £1,260 Income limit £100,000 Where adjusted net Income is £125,140 or more, the personal allowance Is reduced to zero. Residence status Days in UK Less than 15 Previously resident Automatically not resident 46 to 90 Resident if3 UX ties {or more) Resident if 4 UK ties 91 to 120 Resident if 2 UK ties {or more) Resident if'S UK ties (or more) 121 to 182 Resident If 1 UK tle (or more) Resident if 2 UK tles (or more) 183 ofr more Automatically resident Automatically resident 161045 | Resident if 4 UK ties (or more} KAPLAN PUBLISHING Not previously resident Automatically not resident Automatically not resident P.39 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 39 39 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Child benefit Income tax charge Where incorne is betwean £50,000 and £60,000, the charge is 1% of the amount of chiki benefit received for every £100 of income over £50,000. Car benefit percentage The relevant base level of COy emissions is 55 grams per kilometre. The percentage rates applying to petrol cars {and diesel cars meeting the RDE2 standard) with CO, emissions up to this level are: 51 grams to 54 grams par kilometre 15% 55 grams per kilometre 16% The percentage for electric cars with zero CO; emissions is 256. For hybrid-electric cars with COsemissions between 7 and SO grams per kilometre, the electric range of the car Is relevant: Electric range 130 miles or more 2% 70 to 125 miles 40 to 69 miles 5H 8% 30 to 39 miles 12% Less than 30 miles 14% Car fuel benefit The base figure for calculating the car fuel benefit is £25,300. Company van benefits The company van benefit scale charge is £3,600, and the van fuel benefit is £68B. Vans producing zero emissions have a 0% benefit. Individual Savings Accounts (ISAs) The overall investment limit is £20,000. Pension scheme limits Annusl allowance £40,000 Minimum allowance Income limit £4,000 £240,000 Lifetime allowance £1,073,100 The maximum contribution that con qualify for tax rclicf without any carnings is £3,600. P.40 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 40 40 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TAX RATES AND ALLOWANCES Approved mileage allowance: cars Up to 10,000 miles 45p Over 10,600 miles 25p Capital allowances: rates of allowance Plamt and machinery Main pool Special rate pool 18% 6% Cars New cars with zero CO; emissions CO; emissions between 2 and 50 grams per kilometre 100% 18% CO, emissions over 50 grams per k#ometre Annwal investment allowance Rate of allowance 6% 100% Expenditure limit £1,000,000 Enhanced capital allowances for companies Main pool super deduction Special rate pool first year allowance 130% 50% Structures and buildings allowance Straighttine allowance 3% Cash basis accounting Revenue limit £150,000 Cap on income tax reliefs Unless otherwise restricted, reliefs are capped at the higher of £50,000 or 25% of income. CORPORATION TAX Rateoftax -Financial year 2022 = Financial year 2021 — Financial year 2020 19% 19% 19% Profit the eshold £1,500,000 VALUE ADDED TAX Standard rate 20% Registration limit £85,000 Deregistration limit £83,000 KAPLAN PUBLISHING Pai https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 41 41 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) WNHERITANCE TAX: tax rates Nil rete band £325,000 Residence nil rate band Rate of tax on excess - £175,000 20% 40f6 Lifetime rate Desth rate Inveritance tax: taper relief Percentage Years before death reduction More than 3 but less than 4 years 20% More than 4 but less than 5 years More than 5 but less than 6 years 40% 60 More than 6 but less than 7 years 8O% CAPITAL GAINS TAX: tax rates Normal rates Reskiential property Lower rate 10% 18% Higher rate 20% 28% Annyal exernpt amount £12,300 Capital gains tax: Business asset disposal relief and investors’ relief Lifetime limit Rate of tax P42 ~ business asset disposal relief — investors’ relief £1,000,000 £10,000,000 10% KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 42 42 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TAX RATES AND ALLOWANCES NATIONAL INSURANCE CONTRIBUTIONS Class 2 Employee Class 2 Employer £1~ £12,570 per year £12,571 ~ £50,270 per year Nil 13.25% £50,271 and above per year 3.25% £1— £9,100 per year nil £9,103 and above per year Employment allowance 15.05% £5,000 Class 24, 15.05% Class 2 £3.15 per week Lower profits limit Class 4 £12,570 nil €3 ~ £12,570 per year £12,571 ~ £50,270 per year 10.25% £50,271 at above per year 3.25%: RATES OF INTEREST {assumed} Official rate of interest . 2.00% Rate of interest on underpaid tax 3.25% Rate of interest on overpaid tax 050% STANDARD PENALTIES FOR ERRORS Taxpayer behaviour Madmum Minimum penalty penalty ~unprompted disclosure Minimum penalty - prompted disclosure Oeliberace and concealed Deliberate but not concesied Careless KAPLAN PUBLISHING 100% 30% 50% 70%. 20% 35% 320% O% IS%& P43 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 43 43 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION (FA2022) P.44 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 44 44 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TIME LIMITS AND ELECTION DATES income tax Election/ctaim Agrae the smount of trading losses to carry forward Time limit | 4 years from the and of the tax yearin whith the oss arose Current and prior year set-off | 12 months from 31 January following the For 2022/23 S April 2027 31 January 2025 of trading losses against total | end of the tax year in which the loss arose income (and chargeable gains) Three year carry back of trading losses inthe opening years 12 months from 32 January following the =| 31 Janwary 2025 | end of the tax year In which the loss arose Three year carry back of 4 years from the end of the last tax year of | S April 2027 terminal trading asses inthe | treding Closing years National Insurance Contributions Class 1 employee and 17 days after the end of each tax month 22nd of each employer's under PAYE system mernth — pay days (14 days if not paid electronicaily) ‘Class LA Nit ~ pay day ‘22 July following end of tax year 22 July 2023 {19 July if not paid electronically) Chass2 NICs — pay dey Class4 WICs — pay days Paid under self-assessment with balancing | 31 January 2024 payment Paid under self-assessment with income See selftax assessment Capital gains tax Replacement of business asset | 4 years from the end of the tax year: 5 April 2027 for (Rollover relief) tae ' aoa relief for Individuals — —_ inwhich the disposal occurred or —_—| 2022/23 sale or — the replacement asset was acquired whichever is later Gift holdover relief of gain‘on | 4. years from the end of the tax year in the gift of 4 business asset (Gift relief} S April 2027 which the disposal occurred Business asset disposal relief | 12 months from 31 January followingthe | 31 January 2025 end of the tax year in which the disposal occurred Determination of malin private | 2 years from the acquisition of the second residence KAPLAN PUBLISHING property P45 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 45 45 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) Self-essessment ~ Individuals Election/daim Time firnit For 2022/23 Pay days for income tax and Ast instalment: class4 NEC 33 Januaryin the tax year 31 Janwary 2023 2nd instalment: 31 July following the end of tax year 31 July 2023 Balancing payment: 31 January following the endoftak year | 34 January 2024 Pay day for CGT on residential | 60 days after the disposal property disposals Pay day for CGT {balance} and | 34 January following the endoftax year | 34 danwary 2024 class2 NIC Filing dates if notice to file issued by 31 October following end of Tanyeat Paper return: | 39 October following-end of tox year Electronic raturn: 31 January following end of tax year If notice to file issued after tax year 31 October 2023 ' 31 Janwary 2024 7 notice Retention of records Business records 5 years from 31 January following end of | 33 January 2029 Personal records the tax year 412 months fram 31 January followlng 31 January 2025 end of the tax year HMRC right of repair Taxpayer's right to amend a 9 months from date the retum was filed 42 months fram 31 sanuary following retum end of the tax year Taxpayer's claim for 4 years from the end of the tax year 31 January 2025 5 April 2027 overpayment relief HMRC can open an enquiry 12 months from subnission of the return HMRC can reea discovery assessment — Nocareless ordeliberate | 4 years from the ond of the tax year 5 April 2027 behaviour — Taxlostduetocareless. | 6 years from the end of the tax year behaviour Taxlost dueto deliberste | 20 years from the end of the tax year 5 April 2029 5 Apeil 2043, behaviour Taxpayer's right of appeal ogeirst an osstessment 30 days from the assessment — appeal in writing KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 46 46 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TIME LUMITS AND ELECTIONS DATES Corporation tax Election/ claim Replacement of business asset relief for compares (Rollover relief} Time limit 4 years from the end of the accounting period: — In which the disposal occurred or ~ the replacement asset was acquired whichever is later Offset trading losses brought forward. against total profits (income and gains) Current year set-off of trading losses against total profits (income and gains), and 2 years from the end of the accounting period in which the loss ix reGeved 2 years from the end of the accounting perlad in which the loss arose 12 month carry beck of trading losses against total profits (income and gains) Surrender of trading losses to other group companies (Group refief) Election for transfer of capital gain or loss. to another company within the gains group Z years after the claimant company’s accounting perlad 2 years-from the end of the accounting period in which the disposal oecurrad by the cornpany actually making the disposal Self-assessment~ companies Election/ claim Pey day for smaltand medium companies Pay day for large companies Time limit S months and one day after the end of the accouriting pertod instalments due on 14th day of: — Seventh, tenth, thirteenth, and sixteenth month aftar the start of the accounting period Filing dates Later of: = 22 months from the end of the accounting period = Company's claim for overpayment reef HMRC can open an enquiry 3 months from the issue ofa notice to delivera corporation tax return 4 years from the end of the accounting period 12 months from the actual submission of the return Retention of records KAPLAN PUBLISHING § years frorn the end of the accounting period P.at https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 47 47 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Value added tax Election/ clair Time limit Compulsory registration Historic test: - Notify HMRC 30 days from end of the month In which the threshold was exceeded - Charge VAT First day of second month after the month when taxable supplies exceeded the threshold Future test: - Notify HMRC 30 days from the date it ts anticipated that the threshold will be exceeded —* Charge WAT Compulsory deregistration Fiing of VAT return and payment of VAT The date it is antidpated that the threshold will be exceeded (i\e. the beginning of the 30 day period} Notify HOARC 30 days from cessation One month and seven days after the end of the return period P48 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 48 48 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 Section 1 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS PRACTICE SECTION A OBJECTIVE TEST QUESTIONS INCOME TAX BASICS AND EMPLOYMENT INCOME 1 Said has made3 number of investments during the tax year. Tick the appropriate box to show which of the following investments will generate taxable income and which will generate exempt income. Taxable Exempt £400 in shares in the company he works for £1,000 in an Individual Savings Account £800 In a NSS investment account £500 purchasinga NS&i certificate 2 Specimen exam June 2015 OT question Martina is self-employed, and for the year ended 5 April 2023 her trading profit was £111,900. During the tax year 2022/23, Martina made a gift ald donation of £800 (gross) to a national charity. “What amount of personal sliowance will Martina be entitied to for the tax year 2022/23? 3 A £12,570 B £7,020 c £6,620 D £1,470 Ines ise sole trader. During the tax year 2022/23 she had taxable trading income of £106,800 and received dividend income of £1,500. Ines made a gift aid donation of £2,000 (gross) during the tax year 2022/23. What amount of personal allowance is ines entitied to for the tax year 2022/23? £ KAPLAN PUBLISHING 1 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 49 49 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2622) 4 Genna and Wayne are 2 married couple. In the tax year 2022/23 Genna hada salary of £5,000 and: Wayne had property income of £40,650, They have made-an- election to transfer the fixed amaunt of perconal allowance fram Genna to Wayne, What is Wayne's income tax Hability for the tax year 2022/23? 5 A £4,356 B £4,102 Cc £5,364 O £5,368 Tick the appropriate box to show which of the following items of expenditure deductibla in the calculation of an individuel’s taxable income. Oeductibie are Not deductible | A-contribution into 4 personal pension | scheme | Acharitable gift aid donation A contribution into an employer's | etcupstional pension scheme | A charitable donstion made under the | payroll deduction scheme Olayide is provided with van by her employer on 6 April 2022, which she uses 60% for business and 40% for private purposes during the tax year 2022/23. The van has a list price of £30,000 ant CO; emissions of 158 grams per kilometre. Olayide’s employer also pays for fuel used on private journeys in the van, What is Olsyide’s total van and van fuel benefit for the tax year 2022/23? KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 50 50 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS 7 : SECTION 1 lfram has been employed for many years and has also recently become @ partner In a partnership, He is in the process of completing his tax return and has asked your advice regarding the interest payments he has made. identify, by ticking the appropriate box, whether fils interest payments represent qualifying interest and are deductible from his tatal Income or are not qualifying. Qualifying Interest Not qualifying Interest paid on 2 joan he incurred to purchase alaptop for usein his employment Interest pald on the mortgage for his maln private residence interest pald on an amount he borrowed to finance the acquisition of 2,000 shares Ina quoted company Interest pald on a joan he took to invest capital in.a partnership in order to become a partner 8 Sune 2015 OF question Enzo is planning to. leave the UK to live overseas, having always previously been resident in the UK. He will not automatically be treated as either resident in the UK or not resident In the UK. Enzo has several ties with the UK and wil need to visit the UK for 60 days each tax year. However, he wants to be not resident after be leaves the UK. For the first two tax years after leaving the UK, what is the maximum number of tles which €nzo could keep with the UK without being treated as resident in the UK? A One B Four c Two Oo = Three $9 March 20139 OT question Hans was UK resident In the tax year 2021/22. He worked full time in Egypt in the tax year 2022/23. What (s the maximum number of days which Hana can spend In the UK anc be treated as automatically not resident in the UK for the tax year 2022/23? A 86 B 45 Cc pb 182 KAPLAN PUBLISHING 3 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 51 51 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Bao spent 37 days traveBing In the UK during the tax year 2022/23. He has never been 10 resident inthe UK prior to the tax year 2022/23. Minh arrived in the UK from Vietnam on 10 November 2022 to work full time in the UK. Minh did not work fulltime in Vietnam before arriving In the UK. identify, by ticking the appropriate box, who is treated as UK resident in the tax year 2022/23. Resident Not resident } | I 11 Minh December 2016 OT question Which of the following will NOT cause Harper to be treated as sutomatically UK resident for the tax year 2022/2327 A Harper spending £92 days in the UK during the tax year 2022/23 8B Harper renting a house in the UK to live in and then occupying & (as her only home) throughout the tax year 2022/23 ¢c Harper accepting a 15-month contract for a full time ob in the UK on 6 April 2022 OD ——Hawper’s husband living in the UK throughout the tax year 2022/23 and Harper staying with him when she visits the UK During the tax year 2022/23 Petra had trading income of £56,500 and she paid an annual charitable donation of £400 under the gift ald scheme. She recetved child benefit of £1,134 during the tax year 2022/23 in respect of her son, Kostas. Petra had no other income for the tax year 2022/23. What child benefit Income tax charge, if any, will be added to Petra’s income tax ability for 2022/23? Manon purchased £200,000 {nominal value} gilts, paying interest at 1%, for £211,000 on 1 September 2021. Interest is payable half yearly on 30 June and 32 December. He sold the gilts on 1 December 2022 for £213,000 {including accrued interest), > £833 @ How much will Manon 2022/23? £2,000 include In savings Income in respect of the gilts In the tax year on £1,000 £1,833 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 52 52 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 14 = tdertify, by ticking the appropriate box, whether or not the following Individuals are automatically not resident in the UK. Eric, who has never previously been resident in the UK, was in the UK for.40 days during the tex year 2022/23, Fran, who was resident in the UK for the two tax years prior to the tax veer 2022/23, was in the UK for 18 days in the tax year 2022/23 True Fabe Eric &s automatically not resident in the UK Fran is automatically not resident in the UK 45 Ahmed purchased £10,000 [norninal value) gilts, paying interest at 2%, for £12,000 on 1 June 2022. interest ts payable half yearty on 31 March and 30. September, He sold the gilts on 28 Fobruary 2023 for £11,400 (induding accrued interest), How much will Ahmed include in savings income: in respect of the gilts in the tax year 2022/23? 16 A £150 8 £165 c £100 Bb £183 identify, by ticking the appropriate box, the treatment of each of the folowing forms of savings income. Taxable Exempt NS&i investment account interest Gilt edged security Interest NS&d savings certificate interest 17. Oecember 2016 OT question David received the following income for the tax year 2022/23; £ Property income interest from UK Government securities (gifts) Dividends 21,150 2,400 4,250 What is David's total income tax tkability for the tax yaar 2027/23? A £1,996 8 £2,105 c¢ A596 BD £2,305 KAPLAN PUBLISHING 5 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 53 53 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) 18 ~— Harrison’s only Income In the tax year 2022/23 was dividend Income of £56,950, What Is Harrison's income tax liabaity for the tax year 2022/23? £ 19 September 2015 OT question Since 6 April 2022, Nicolas has let out an unfurnished freehold office building. On that date, the tenant paid Nicolas a premium of £82,000 for the grant of a 15-year lease. How much of the premium of £82,000 is taxable as property income for the tax year 2022/23? A = £58,040 20 B= £22,560 C £82,006 DO £5,457 3=Amber is in employment earning sn annual salary of £55,000. Her only other income Is bark interest of £3,000. She received chiid benefit of £1,885 during the tax year 2022/23. Select Amber's child benefit tax charge and method of collection for the tax year 2022/23, by selecting the appropriate box In the table below. Method of collection Child benefit tax charge 21 £i = £942 Self-assessment PAYE A 8 c o December 2016 OT question On 6 April 2022, Melinda rented out a furnished room in her house to Jenny ata rent of £750 a month. Jenny continued to rent the room on the same terms until S July 2023, Melinda continued ta live in the house and paid for all of the living expenses, of which £475 a month related to the room rented out to Jenny. What is Melinda's property income for the tax year 2022/23, assuming that any beneficial elections are made? A £1,500 6 £0 Cc £3,300 B £7,500 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 54 54 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 September/Dacember 2020 OT question On 2 October 2022, Sou granted a 25-year lease of a freehold property in return for a premium of £20,000. What is Sou’s assessable property income for the tax year 2022/23 in respect of this lease £5,200 £10,000 Maisy has 8 cottage which she lets out furnished for an annual rent of £9,600, payable monthly in:advance. She incurred the foBowing expenditure, which was paid for on the dates shown: 6 April 2022 Council tax {for the year to 31 March 2023) Insurance for the year ended 30 September 2023 (previous year £490 paid 5 October 2021) ‘9 December 2022 = Replaced the refrigerator with a simMar model $00 6 October 2022 540 870 What is Maisy’s property income for the tax year 2022/237 A £8,190 B £7,290 C £7,320 D £8,160 Steffania’s ony income is from letting out furnished residential property, none of which & qualifying furnished holiday accommodation, For the tax year 2022/23 her taxable property income was £25,000, BEFORE adjusting for the following iterns. 1 2 Payment of £500 to replace a damaged kitchen unit in a fitted kitchen, Interest paid of £12,000 on a loan to acquire one of the properties, What Is Steffania’s taxable property income for tha tax year 2022/23? £ Ewa earned an annual salary of £55,000 throughout the tax year 2022/23. She used her own car for business travel, and she travelled 14,500 business miles during the tax year 2022/23. F on +> ‘What is Ewa’s assessable employment income, assuming her employer paid her 43p per business mile? £55,610 £54,390 £54,710 £55,290 KAPLAN PUBLISHING ? https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 55 55 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) 26 Christos, a higher rate taxpayer, Is provided with the fofowing benefits In the tax year 2022/23 by his employer: 1 Free use of the staff canteen at lunchtime for 200 days during the tax year. The canteen ts available to all staff and the average cost of preparing a meal Is £4, 2 _—~ Private medical insurance st a cost of £650to his employer. Christos made a claim during the tax year 2022/23 and the insurance provider pald out £350. 3 £5 per week for the additional household costs incurred when he works from home. What is the assessable value of his benefits in the tax year 2022/23? 27 Elin is provided with accommodation by her employer, which the employer purchased 3S years ago at 2 cost of £72,000. The property has an annual value of £2,600, and had a market value of £245,000 when first made available to Elin 8 years ago. Elin pays E250 per month to her employer to live in the property, The accommodation does not qualify as job-related, onfo > What is the assessable benefit for Elin in the tax year 2022/23? £0 £3,000 £3,060 £2,600 Thiago & provided with a new diesel company car on & May 2022, which he used for both business and private purposes during the tax year 2022/23. The car has a list price of £28,000 and CO: emissions of 157 grams per kilometre. The car meets the ROE2 standard. What is Thiago’s car benefit for the tax year 2022/23? £ Woojln ts provided with a loan, on which he pays interest at 1% per annum, by his employer. The loan was €100,000 when it was taken out on 6 April 2022 and he repaid £40,000 of the loan on 6 August 2022. } £1,600 f What Is Woo]|ln’s beneficial loan benefit for the tax year 2022/23 assuming the average method of calculation is used? £367 co £733 £800 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 56 56 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS 30 : SECTION 1 §=Dong is emptoyed, As well as his annual salary he &s also paid a bonus In April each year. The amountofthe bonus ts based upon his performance ta the end of the previous calendar year, identify, by ticking the sppropriate bax, the treatment of each of the following bonuses. Taxable in tax year | Not taxable in tax 2022/23 year 2022/23 Bonus of £2,800 received on 6 Apeil 2022 in respect of the year to 31 December 2021 Bonus of £3,300 received on 3 April 2023 in respect of the year to 31 December 2022 31 September 2016 OT question Max is employed by Star Ltd, On 6 April 2021, Star Ltd provided Max with o camera for his personal use. The camera had a market velue of £2,000 on 6 April 2021, On 6 April 2022, Star Ltd gave the camera to Max for frae. The camera had a market value of £1,400 on 6 April 2022. What ts Max’s taxable benefit in respect of the camera for the tax year 2022/23? 32 A £1,000 B £1,400 Cc £2,000 D F600 On 6 June 2022 Albert, a marketing manager, was reimbursed £500 by his employer, Generous Ltd, in respect of subscription fees he had paid to The Chartered Institute of Marketing, and £200 in respect of train fares incurred travelling to meetings. Which TWO of the following statements concerning the tax treatment of the reimbursed expenses are correct? A The retnbursed subscription fees must be added to taxable pay and taxed through the PAYE system B The reimbursed travel expanses must be added to taxable pay and taxed through the PAYE system Cc The reimbursernent of the subscription fees is exempt income so no action is required for tax purposes D The reimbursement of the travel expenses is exempt income so no action és required for tax purposes E Albert must include the reimbursed subscription fees on his tax return F Albert must include the reimbursed travel expenses on his tax return KAPLAN PUBLISHING 3 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 57 57 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK: TAKATION (FA2022) INCOME TAX BASICS AND INCOME FROM SELF-EMPLOYMENT 33 Vicente is 3 sole trader. When cekulating his trading profits, Vicente has deducted the following expenses: Nw Gifts of food hampers for 10 customers costing £450 In total 3 a Christmas party for3 staff members costing £630 tn total Legal fees of £150 in respect of the acquisition of a 20-year lease of a property Employee parking fine whilst on business of £30 What amount must be added back when calculating Vicente’s tax adjusted trading profits? Haniful has taken goods fron his business for personal use. The goods cost £850 and have a selling price of £1,100. He has made no entry in his business accounts in respect of the goods except to record thelr originat purchase by the business. Hanifuls trading profits prior to any adjustment required for the goods taken for own use were £247,500. oo 8 FY What is Haniful’s tax adjusted trading profit after making any necestary adjustments in respect of the goods teken for personal use? £248,350 £248,600 £246,400 £247,750 Fleur runs a sole trader business arid on 1 January 2022 she paid a £25,000 premium for a 20-year loase on an office from which she will run her business. What smount can be deducted in respect of the lease premium when calculating Fleur’s tax adjusted trading profits for the year ended 31 December 20227 £ September 2015 OT question Wan ceased trading on 31 December 2022, having been self-employed since 1 January 2068. On 1 January 2022, the tax written down value of her plant and machinery main pool was £6,200. On 10 November 2022, Wan purchased a computer for £1,600, Ali of the hems included in the main pool were sojd for £9,800 on 3 1 December 2022. What is the balancing charge which will arise on the disposal of the main pool items upon the cessation of Wan’s trace? 10 A €4716 B £3,404 Cc ~=£2,000 DCD £3,600 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 58 58 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 June 2019 OT question Olive is self-employed, preparing her accounts to 5 April each year. She claims. capital alowances on 2 car used in her business, The car has a CO) emission rate of 65 grams per kiometre, with 40% of Olive’s mileage for private purposes. The car had atax written down value of £12,000 at 6 April 2022, Olive sold the car for £5,000 on 1 Nowember 2022. What amount of capital allowances can Olive claim in respect of the car for the tax year 2022/23? A £3,600 B c £648 £2,400 6 £216 Which TWO of the following assets bought by a sole trader will be allocated to the main pool for capital allowance purposes? A Delivery van costing £12,500 with 25% private use by the owner of the business B Laptop computer costing £4,500 with 15% private use by the owner of the business c Car with CO2 emissions of 45 grams per kilometre costing £17,500 with 25% private use by an employee of the business D = Car with CO) emissions of 75 grams per Kilometre costing £16,500 used solely for business purposes by the owner of the business E F Factory air-conditioning system costing £110,000 with a 27 year expected life Packing machiné costing £105,000 and with@ 24 year expected life Andrew prepared accounts for the elght months to 31 March 2023. The tax written down value of the main pool on 1 August 2022 was £18,000. On 15 January 2023 he purchased a new car with zero CO; emissions casting £12,260. tt is used solely for business purposes by Andrew. What are the maximum capital allowances Andrew may claim for the eight month period ended 31 March 20237 KAPLAN PUBLISHING 11 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 59 59 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION 40 (FA2022) Ronald has always prepared his accounts to 31 March, On 31 March 2023 Ronald ceased trading. The tax written down value of the main pool at 1 April 2022 was £15,000. On 1 January 20273 Ronald purchased ¢ laptop solety for business use costing £4,500. On 31 March 2023 all the Kerns in the main pool were sold for £14,550 apart from the laptop which wes retained by Ronald, The market value of the taptop at 31 March 2023 was £4,150. None of the Items In the main pool were sold for more than their original cost. What is the capital allowance/(balancing charge) for the year ended 31 March 2023? A B C D 41 £144 £450 —(€809) £800 Cora has always prepared her accounts to 31 October, On 1 May 2022 she purchased a building which she brought Into use on 1 June 2022. Cora spent £700,000 on the land, £550,000 on the structure and building and £30,000 renovating the building. What Is the maximum structure and bulldings allowance (SBA) Cora may calm for the year ended 31 October 2022? 42 Which TWO of the following statements concerning the tax treatment of capital expenditure are ALWAYS correct? A A goods vehicle with zero CO: emissions will qualify for 3 FYA 8 Expenditure ona building qualifies fora 3% SBA from the date of acquisition C The main poo! qualifies for the small pool WDA if the balance after disposals is less than £1,000 oD The AIA is allocated to additions in the special rate pool in priority to additions in the main pool — 4 balancing adjustment ts calcufated on the disposal of a building on which S8As have been claimed F On disposal of a building that qualified for SBAs the seller increases the sales price by the SBAs claimed 43 Jacinta started trading om 1 August 2022.and prepares accounts to 31 December each year. Her trading profits for the flest two periods are as follows: S months ended 31 December 2022 Year ended 31 December 2023 £10,500 £24,000 What is the trading income assessment for Iacints for the tax year 2022/23? 12 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 60 60 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION Marek decided to cease trading on 31 January 2023 after trading for many years. 1 His tax adjusted profits for recent years have been: Year ended 30 Apri 2021 £40,000 Year ended 30 Aprit 2022 £10,000 Period ended 31 January 2023 £14,000 Marek has overtap profits of £3,000 brought forward frorn the commencement of trade, What is Marek’s trading income assezement for the tax year 2022/7237 A £11,000 B £14,000 Cc D £21,000 £24,000 PARTNERSHIPS Elizabeth and Henry have been in partnership for many 31 December each year. years, preparing accounts to Until 31 July 2022 profits were shared in the ratio 70:30 to Elizabeth and Henry respectively, with no salary allocated to either partner. From 1 August 2022 the profit sharing ratio was adjusted to 80:20 to Elizabeth and Henry respectively, after allocatinga salary of £24,000 per annum to Henry. The adjusted trading profits for the accounting year ended 31 December 2022 are £120,000. How much of the profit for the year ended 31 December 2022 Isallocated to Henry? A = £41,000 B £31,000 C £43,200 BD £39,000 Albert and Jolene have been in partnership for many years, preparing accounts to 30 September each year. Albert and Jolene have balances on their capital accounts of £50,000 and £40,000 respectivaly. The partnership agreement prowides for Albert to receive an annual salary of £25,000 and both partners to receive interest on capital of 4% per year, The agreed profit sharing ratio is 1:3 to Albert end Jolene respectively, The adjusted trading profits for the accounting year ended 30 September 2022 are £80,000. How much trading profit is assessable on Albert in the tax year 2022/23? KAPLAN PUBLISHING is https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 61 61 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) 47 = Tim, Abhiroop and Angela have been In partnership for many years, preparing accounts to 31 December each year, The partnership agreement provides for Tim to receive an annual salary of £15,000. The agreed profit sharing ratio is 1:3:2 to Tim, Abhiroop and Angela respectivoly. Tim feft the partnership on 31 May 2022. The adjusted trading profs for the accounting year ended 31 December 2022 are £360,000, How much of the profit for the year ended 31 December 2022 is allocated to Tim? 48 A £25,000 B £30,208 c D £72,500 £23,958 Nazim and Laura have been in partnership for many years, preparing accounts to 31 October ¢ach year and sharing profits equally. On 1 June 2022 Fabiola joined the partnership, The agreed profit sharing ratio wos 2:2:1 to Nazim, Laura and Fabiols respectively. The adjusted trading profits for the accounting years ended 31 October 2022 anc 2023 were £240,000 and £300,000 respectively. ~ mo fm & Yb Which THREE of the following statements about Fablola’s trading income are correct? Fablola will be assessed on trading income of £20,000 In the tax year 2022/23 Fabiola will be assessed on trading income of £45,000 in the tax year 2022/23 Fabiota will be assessed on trading income of £45,000 in tha tax year 2023/24 Fabiota will be assessed on trading income of £60,000 in the tax year 2023/24 Fabiola will have overlap profits of £25,000 Fablote will have overlap profits of £60,000 TRADING LOSSES 49 June 2015 OT question Naomi is self-ernployed. For the year ended 5 April 2023 she made a trading toss of £110,000, having made a trading profit of £24,000 for the year ended S April 2022. Naomi also had employment income of £92,000 for the tax year 2021/22. What ts the maximum loss relief claim which Naomi can make against her total Income for the tax year 2029/22? 14 A £74,000 6 £50,000 ¢c £110,000 DO =£29,000 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 62 62 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 Brooke had been trading profitably as a sole trader for many years, However, In the year ended 31 August 2021 she made a trading loss of £65,000, Brooke has the following income in the tax year 2022/23: Trading profit for year ended 31 August 2022 £ 12,000 Dividend income 9,000 Property Income {furnished holiday accommodation) 4,000 NSS! savings certificate interest 1,000 What is Brookes’ net income for the tax year 2022/23 assuming the carries the trading loss forward? Si Darmyanti bas been trading as a sole trader for many years. Her recent tax adjusted trading profits/(losses) have been: Year ended 31 August 2021 £55,000 Year ended 31 August 2022 (£90,000) Darnyanti also receives bank interact of £14,000 each tax year. oowv > What Is the amount of trading toss carried forward to the tax year 2023/24 assuming that Damyanti makes 2 dalm to use the loss in the current and prior tax years? £35,000 £26,000 £21,000 £7,000 Sabine started to trade as a sobe trader on 1 November 2020. Her tax. acjusted trading profits/(losses) for the fest two years are: Year ended 31 October 2021 (£25,000) Year ended 31 October 2022 £5,000 Sabine was employed until 31 March 2020 earning £45,000 per annum. How much, if any, of the loss can be offset against Sabine’s employment income in 2017/18? KAPLAN PUBLISHING i5 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 63 63 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) Sally has been trading as a sole trader for many years. in the year ended 31 July 2022 she made a trading loss of £45,000. Salty’s only other source of income is property income of £8,000 each tax year. in the tax year 2022/23 Sally realised a chargeable gain of £32,000 on the sale of a necklace and @ capital loss of £4,000 on the sale of 8 painting. She has capital losses brought forward of £18,000, What {5 the amount of trading loss that Sally can offset against her chargeable gain In the tax year 2022/23? A = £45,000 B £37,000 Cc £28,000 0 = £10,000 Carol ceased trading on 30 September 2022, Her recent tax adjusted trading profits/(losses) have been: Yearended 31 January 2022 £39,000 Period ended 30 September 2022 (£24,000) Carol had unused overlap profits from the commencement of trade of £12,000. What is the amount of terminal loss available to Carol? PENSIONS AND NIC SS June 2015 OT question Which classes of national insurance contribution is an employer responsible for paying in on@& > respect of its employees? 16 Both class 2 and class 4 Class 1 only Both class L and class 1A Class 2 only KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 64 64 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 Hamid runs:a sole trader business, In which he employs an employee who earns £40,000 per annum and is provided with a company car for private and business use. For each class of NIC select whether it is paid to HMRC by Hamid and aiso whether it represents part of the total tax cost suffered by Hamid. Paid by Hamid to HMARC | Suffered by Hamid Employee class 1 primary Employer's class 1 secondary Class 1A Class2 Class4 S7 September 2015 OT question Lorna has the choice of being either employed or self-employed, IF employed, Lorna's gross annual salary for the tax year 2022/23 will be £36,000. If self-employed, Loma’s trading profit for the year ended 5 April 2023 will be £36,000. How much more national insurance contributions will Lorna suffer for the tax year 2022/23 if she chooses to be employed rather than self-employed? A £702 B £916 Cc £538 BD £1,080 During the tax year 2022/23, Amari was paid a gross annual salary of £60,000 and made an occupational pension contribution of £6,000. He also recelved taxable benofits valued at £5,900. What amount of employee class 1 national insurance contribution (Mics) will have been suffered by Amari for the tax year 2022/23? £ Efe is a director of Mulch Ltd, and is paid an annual salsry of £60,000. During the tax year 2022/23 he also recelved an annual bonus of £3,000 and free meals in the workplace canteen, open to all staff, at a cost of £1,040 to his employer. “What amount of employee class 1 national insurance contribution (NICs) will have been suffered by Efe for the tax year 2022/23? A B c D KAPLAN £5,409 £5,443 £5,311 £6,682 PUBLISHING i? https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 65 65 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) tsak is an employee of Olbbit Ltd, and Is paid an annual salary of £50,000. He makes contributions of £3,000 into the company’s occupational pension scheme each year, In the tax year 2022/23 he drove 12,000 business miles in his own car for which he was paid S0p per mile by Dibbit Ltd. How much employer's dass 1 NICs Is Dibbit Lid required to pay in respect of Isak for the tax year 2022/23? £ 61 September 2016 OT question Paloma has been trading for a number of years. Her tax adjusted trading profit for the year ended 31 May 2022 was £58,000 and for the year ended 31 May 2023 was £57,200. What is the amount of class 4 national insurance contributions {NIC} payable by Paloma for the tax year 2022/23? & €4575 6B £4,657 Cc £4,069 D €4,115 September 2015 OT question Elsa is employed by Bee Ltd. During the tax year 2022/23, Bee Ltd provided Elsa with the following benefits: 1 Apnyate gym membership 2 A contribution of £1,800 into a private pension scheme. Elsa had use of the private gyn membership throughout the tax year. The normal membership fee is £1,000, but Bee Ltd negotiateda discount and paid £900 for it. What amount of class 1A national insurance contributions (NICs) are payable by Bee Ltd in respect of Elsa for the tax year 2022/23? A €135 6 £151 c £406 Oo £421 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 66 66 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 Kolo ts an employee of Lapsang Ltd. He is paid a salary of £20,000 and has use of & petroldriven company car for private purposes throughout the tax year 2022/23, The car has a list price of £25,000 and CO, emissions of 94 grams per kilometre. No petrol it provided for private mileage How much class 14 NICs Is payable in respect of Kolo’s company car and by whom fs It suffered? Select the appropriate box in the table below, Suffered by ; Glass 1A £519 £3,529 Lapsang Ltd | Kolo A c | B D Robin Is a sole trader. His tax adjusted trading orofit for the year ended 31 July 2022 6 £70,000. In the year ended 31 July 2021 he had-a trading loss of £20,000 which he decided to carry forward rather than offset against total income of the current or prior year, Robin's other income in the tax year 2022/23 camprises £3,000 of savings income. How much are his assessable profits for dass 4 NIC purposes for the tax year 2022/23? A £70,000 B £53,000 Cc £50,000 D £73,000 Mohammed, age 35, runs a sole trader business. In the year ended 5 April 2023 his accounting profit and tax adjusted trading profit were £11,400 and £12,800 respectively, ‘Nicole is aged 7S and receives the state retirement pension. She also has a sole trader business. In the year ended 5 April 2023 her accounting profit and tax adjusted trading profit were £11,900 and £12,600 respectively, identify, by ticking the appropriate box, who is required to pay class 2 NIC for the tax year 2022/23: Class 2 NICs payable Class 2 NiCs not payable Mohammed Nicole December 2016 OT question Sanjay commenced trading on 1 January 2022 and prepared his first set of accounts for the six month period ended 30 June 2022. His second set of accounts were prepared for the year ended 30 June 2023. Sanjay’s tax adjusted trading profits were: Six month period ended 30 June 2022 Year ended 30 June 2023 E8,800 £24,400 What are the class4 national Insurance contributions (NICs) which Sanjay should payIn respect of the tax year 2022/23? KAPLAN PUBLISHING 19 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 67 67 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) 67 Broadman Ltd provides employment benefits to its employees. On which TWO of the following banefits is dass 1A NIC payable Dy Broadman Ltd? & 8 C nn mm D = Occupational pension scheme contributions of 5% of the employees’ salaries Payment for s parking space in a public car pork near the office — Aanual summer event costing £200 per head Provision of a smart phone for businass and private use inchuding the cost of private calls Mernbership of local sports club at a cost of £400 per annum Mileage allowance of Sp per mile for cast of travel between employee's home and the company’s office premises Isaac is self-employed and for the year ended 31 March 2023 he paid £20,000 (net) into his personal pension plan, saac’s relevant earnings for the tax year 2022/23 were £110,000, What amount of income tax will isaac pay at the basic rate for the tax year 2022/23? E September 2016.OT question Abena has made the following gross contributions to her personal pension scheme over the past three tax years: Tax year E 2019/20 42,000 2020/21 2024/22 37,000 28,000 Abana’s adjusted income did not exceed £240,000 in any tax year, What is the maximum gross contribution which Abena can make to her personal pension scheme for the tax year 2022/23 without giving rise to an annual allowance charge? 20 A £53,000 B £40,000 € £55,000 BD £52,000 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 68 68 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 70 = Austin, age 47, runs a sole trader business, In the tax year 2022/23 his trading Income was £51,200. During the tax year 2022/23 he paid £22,400 [net) into a personal pension scheme, Petra, age 45, has employment Income of £120,000 in the tax year 2022/23. She has never been a member of a pension scheme until the tax year 2022/23 when she paid £50,000 (net) intoa personal pension scheme, identify, by ticking the appropriate box, who has made fully tax rellevable pension contributions in the tax year 2022/23. Fully tax relicvable pension contributions Not fully tax rellevable pension contributions Austin Petra December 2019 OT question Niamhe has adjusted income for the tax year 2022/23 of £270,000. Ouring the year, ste made personal pension scheme contributions of £100,000 {gross}. Niambhe has no brought forward unused annual allowances. What is the amount of annual allowance charge to be added to Niamhe’s taxable Income for the tax year 2022/23? A B c D £75,000 £60,000 £96,000 £25,000 Griff is employed by Gargoyle pic on an annual Salary of £50,000. In addition Griff lets out two properties: 1 qualifying furnished holiday sccommadation £5,000 per annum, and which generates taxable income of 2 @ warehouse, let to a local business, which generates taxable Income of £3,000 per annum. In the tax year 2022/23 he made a £4,000 (gross) donation to a national charity under the gift aid scheme. Wheat are Griff’s not relevant earnings for pension purposes for the tax year 2022/23? A £51,000 B £53,000 Cc £59,000 Dd £55,000 KAPLAN PUBLISHING 21 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 69 69 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAKATION {FA2022) 73 = Roger & employed on an annual salary of £145,000. His employer has an occupational pension scheme into which Roger pays 2% of his salary and the company pays 5% of his salary. Roger also made a payment of £20,000 into a personal pension scheme inthe tax year 2022/23. What is Roger’s net income (before deducting the personal allowance) for the tax yeer 2022/23? £ 74 = Natalia’s only income in the tox year 2022/23 is treding income of £100,000. She also has an annual allowance charge of £10,000 as a result of making gross personal pension contributions of £50,000 in the tax year 2022/23. ‘What is Natalia’s income tax liability for the tax year 2022/237 A ELS, 486 6 £21,432 C £27,486 0 = £31,432 ADMINISTRATION AND ETHICS 75 = Taxes can be ¢ither capital taxes or revenue taxes, although some taxes are neither type of tax Tikk the appropriste boxes to show the correct classification for the following three taxes. Capitaltex | Revenue tax | Neither type | Value added tax | inheritance tax | National insurance contributions | Capital gains tax 76 0 =©Jumve 2015 OT question Which of the following statements correctly explains the difference between tax evasion and tax avoidance? A —- Both tax evasion and tox avoidance ore Wicgal, bul tax evasion involves providing HM Revenue and Customs with deliberately false information 8 c Tax evasion ts illegal, whereas tax avoidance involves the minimisation of tax Habilities bythe use of any lawful means Bath tax evasion and tax avoidance are illegal, but tax avoidance involves providing HM Revenue and Customs with deliberately false information D = Tax avoidance is Illegal, whereas tax evasion Involves the minimisation of tax fatilities by the use of any lawful means 22 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 70 70 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 77 ~—s Tick the appropriate boxes to show whether the following statements about direct taxes are true or false. Troe False Corporation tax & a direct tax on the turnover of companies Natlonal insurance is a direct tax suffered by employees, employers and the scit-cmployed on carnings Inheritance tax Is a direct tax on transfers of income by individuals Value added tax is a direct tax on the supply of goods and services by businesses 78 Which TWO of the following are true of tax evasion? A Tax evasion means using the taxation regime to ones’ own advantage by arranging your affairs to minimise your tax liability "mo 4 @ Tax evasion Includes not providing all relevant informationto HMRC 73. Tax evasion jc legal and does net involve misleading HMRC Tox evasion utilises loopholes in tax tegisiation Tax evasion encompasses any attempt to avoid or reduce tax by illegal means Tax evasion includes utilising tax-free investments, such as [S45 Whichof the following ts true of a tax adviser? A = Atax adviser can only disciose information about the dient to third parties with the clients’ consent 8 A tax adviser must not assist a client to plan or commit any tax offences Ifa tax adviser becomes aware thata client has committed a tax irregularity they must disclose it to HMRC Ds 86 Atax adviser acting for a cient has no duties and responsibilities towards HMRC 4 =You area tralnee Chartered Certified Accountant and your firm has a dient. who has refused to disclose a chargeable gain to HM Revenue and Customs {HMRC). Tick the appropriate boxes to show which of the following actions could be expected of your firm and which would be unacceptable. Couldbe | Unacceptable expected Reporting under the money laundering regulations Advising the client to make disclosure Ceasing to act for the client Informing HMRC of the non-disclosure Warning the dient that your firm will be reporting the non-disclosure Notitying HMRC that your firm has ceased to act for the client KAPLAN PUBLISHING 23 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 71 71 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION 81 (FA2022) December 2016.0T question Which of the following is the correct definition of an extra-statutory concession? A = A provision for the relaxation of the strict application of the law where it would lead to anomalies or cause hardship 8 Supplementary information providing additional detail in relation to the general Principles set out In legisiation € 0 HM Revenue and Customs’ interpretation of tax legisiation = Guidance provided to HM Revenue and Customs’ staff in interpreting and applying tax legista tion 82 For the tax year 2022/23, what are the latest dates by which a taxpayer, who does not wish to Incura penalty, should file a self-assessment tax return on paper or online? Select the sppropriate bax from the table below, Paper tax return 31 October 2023 | | Online tax return | 83 31 October 2024 31 Jarwary 2024 A 8 31 January 2025 c D Which of the following statements concerning self-assessment tax retums for individuals is trun? A individuals with tax payable of bess than £1,000 for a Lax year are not required to file a tax return. 6 indWiduals are only required to file a tax return for a tax year If they receive a notice to deliver from Hi Revenue and Customs (HMRC). Cc All individuals who submit a tax return on time are able to have their tax payable calculated by HM Revenue and Customs (HMRC). Ds The tax return for an individual covers income tax, class 1, dass2 and dass 4 national Insurance contributions and capital gains tax lkabiBties. 24 ~~ Philip tsa sole trader and is married to Harriet. Harriet is in employment. They jointly own a residential investment property which is rented out. Select, by ticking the appropriate bou, the tstest date until which Philip and Harriet must keep the records that support thelr tex returns for the tax year 2022/23. Phillip Harriet 31 January 2025 | 31 January 2028 "31 January 2029 24 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 72 72 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 Oecember 2016 OT question For what length of time after the end of the tax year for which a self-assessment tax return has been completed is a sole trader required to keep their accounting records? a 12 months after the 31 January that follows the end of the tax year 8 12 months after the end of the tax year c 60 months after the end of the tax year D 60 months after the 31 January that follows the end of the tax year For the tax year 2021/22, Willard filed a.paper self-assessmenttax return on 10 August 2022, What is the deadline for Willard to make an amendment to his tax return for the tax year 2021/22, and by what date will HPA Revenue and Customs (HMRC) have to notify Willard if they intend to carry out a compliance check into this return? Select the appropriate box from the table below. Amendment 10 August 2023 Compliance check 31 January 2024 10 Qugust 2023 A 8 31 January 2024 ¢ 0 June 2015 OT question Abdul's tax liabilities for the tax years 2021/22 and 2022/23 are as follows income tax payable Class 4 national insurance contributions Capital gains tax liability 2021/22 £ 2022/23 £ 300 2,400 320 240 1,260 0 850 3,650 What payment on account will Abdul have to make on 31 July 2023 in respect of his tox lability for the tax year 2022/23? A £310 B £1,830 c £430 5 KAPLAN PUBLISHING 25 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 73 73 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION 8% (FA2022) Jeanette's income tax and capitsl gains tax labilitles for the tax year 2022/23 were £25,000 and £5,000 respectively, Of the £25,000 income tax liability, tax of £5400 was deducted at source under PAYE. She made payments on account totalling £18,000 for the tax year 2022/23. What is the balancing payment Jeanette should pay and when is it due? Select the appropriate box from the table below. Que date | 31 January 2028 | 51 January 2024 Balancing 89 ~_ payment £6,600 “ B £16,400 c D June 2015 OT question Quinn will not pay the balancing payment in respect of her tax liability for the tax year 2022/23 until 17 October 2024, What is the total percentage penatty which Quinn will be charged by HIM Revenue and Customs (HMRC) in respect of the late balancing payment for the tax year 2022/23? A 15% & 10% c 5% 0 30% 90 = Belinda paid the balancing payment 10 March 2023. of Income tax of £7,400 for the tax year 2021/22 on For each of the following statements select whether it is true or false: True False | Belinda will have to pay Interest on late paid tex from | 31 January 2023 to 10 March 2023 | Belinda will have to pay a £100 fixed penalty because the | payment & late | Belinda will have to pay a5% penaky because the payment is more than 30 days late 91 September 2016 OT question Eva's income tax liability and class 4 national insurance contributions (NIC) for the tax year 2022/23 are £4,340, Her income tax liability and class 4 NICs for the tax year 2021/22 were £6,360. What is the lowest amount to which Ewa could make a daim to reduce each of her payments on account for the tax year 2022/23 without being charged interest? 26 A £4,840 6B c £0 £3,180 DB £2,420 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 74 74 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 92 INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 Florence ffed her return for the tax year 2022/23, showing Income tax payable of £6,500, 8 months late In addition to the initial £100 Late filing penalty, what is the maxinwm further penalty that she can be charged for filing the tax return bate? 93 September 2016 OT question Rajesh |s. a sole trader, He correctly calculated his self-assessmemt payments on account for the tax year 2022/23 and paid these on the due dates. Rajesh paid the correct balancing peyment of £1,200 for the tax year 2022/23 on 30 June 2024. What penalties and interest may Rajesh be charged as a result of his late batancing payment for the tax year 2022/23? ofec > Interest of £16 only 94 Interest of £39 only interest of £39 anda penalty of £60 Interest of £16 and a penalty of £60 Welsn Ltd pays its employees monthly on the 15th of every month. For cach of the following statements select whether it is true or fake: True False Under the Real Time information PAYE system, Welan Ltd mast subsriit income tax and NIC information in respect of the monthly salary payments to HM Revenue & Customs electronically by the 15th day of each month if Welan Ltd pays the income tax and NiC due on the monthly salary payments to HM Revenue & Customs electronically it must make the payment by the 22nd of the month following the month the selanes are paid Welan itd must provide each employee with a year-end summary form (P60) for the tex year 2022/23 by 6 July 2023 95 December 2018 OT question Humphrey is 2 sole trader veho has been trading for a number of years. Humphrey incurred a trading loss in the tax year 2022/23, He wishes to make a claim to offset this loss against his total Income of the tax year 2021/22. What is the deadline for Humphrey to chim this relief? A 31 January 2024 B 31 January 2025 € 5S April 2026 BD 5 April 2027 KAPLAN PUBLISHING 27 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 75 75 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) PRACTICE SECTION B OBJECTIVE TEST CASES INCOME TAX BASICS AND EMPLOYMENT INCOME 96 PHILIP & CHARLES (ADAPTED) re Walk in the footsteps of ¢ top tutor Philip and Charles are father and son. The following information is available for the tax year 2022/23. Philip Wind Philip retired at the age of 55. During the taxyear 2022/23 Philip received cension income of £15,000 and building society interest of £14,600. Charles Wind Chariesis self-employed, and his tax adjusted trading profit for the year ended 31 December 2022 was £112,400. During the tax year 2022/23 Charles made a pitt aid donation of £800 {gross} toa national charity. Charies has been a member of a personal pension scheme since May 2020, He made 3 gross contribution of £23,060 in the tax year 2026/21 but has not mede any subsequent contributions. 1 2 What is Philip's income tax liability for the tax year 2022/23? A £2,652 B £2,892 c £3,206 D £3,406 Charles is entitled te a personal allowance of £ for the tax year 2022/23. Select the appropriate answer from the options below. 3 4 £12,570 8 £6,770 c £6,370 0 £5,300 What is the amount of class 4 national insurance fiability in respect of Charles for the tax year 2022/23? £ } ond KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 76 76 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 5 TAX 4ND NATIONAL INSURANCE QUESTIONS : SECTION 1 FY £95,000 @ £40,000 Oo What was the total available annual allowance available to Charles for pension contribution purposes in the tax year 2022/23? £135,000 0 4 INCOME £55,000 Charles had considered making payments of £6,880 into a personel pension scheme during the tax year 2022/23. For each of the following statements select whether it would be true or false if he had made such a contribution: : True | : False His basic rate band for the tex year 2022/23 would have been increased by £8,600 In relation to this contribution His taxable income for the tax year 2022/23 would have been reduced by £3,600 HM Revenue and Custom: would have paid £1,376 into the pension fund on his behalf His personal allowance would have Increasec by £4,300 in the tax year 2022/23 97 KIM BAXTER (ADAPTED) et Wotk in the footsteps of a top tutor Kim is employed as a sales person by Sharp-Suit ok, During the tax year 2022/23 her employment package included the following benefit=: i During the period from 1 June 2022 to S April 2023 Kim used her private car for business aad private purposes, She received 36p for each business mile travelled from Sharp-Suit ple. Xim’s mileage during this period was.as follows: Miles Norma! daily travel between home and permanent workplace 3,400 Travel between permanent workplace and Sharp-Suit plc’s customers Travel between horne and a temporary workplace for one month 9,200 1,300 2 On 1 June 2022 Sharp-Suit pic provided Kim with @ joan of £14,600, interest rate of 0.75%, so that she could gurchase a new car. at an annual 3 On 6 April 2022 Kim purchased a television from Sharp-Suit pic for £50 when its market value was £200. The company had purchased the television for £800 an 6 April 2021 and Kim had used it at home since that date. Kim's total employment income, including the above benefits/deductions, for the tax year 2022/23 was £25,650, KAPLAN PUBLISHING 29 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 77 77 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Other information Ouring the tax year 2022/23 Kim paid Interest of £140 on 3 personal loan, taken out on lLJanuary 2022, to purchase a laptop computer for use in her employment with Sharp-Swit pk. She also pak! a charitable contribution of £800 under the gift aid scheme. She had no other sources of income, Kim’s husband Richard stays at home to look after their children while Kim is at work. Richard's only income in the tax year 2022/23 was savings income of £11,700, 1 What effect will the use of her car for business purposes have on Kim’s taxable employment income in the tax year 2022/23? Select the appropriste box from the table below. Effect on emplayment income Amount 2 Allowable deduction Taxable benefit A B re £845 te £045 c D What Is the taxable benefit in respect of the loan from Kim's employer for the tax year 2022/23? 3 A £182 B £243 Cc £91 D £152 What is the taxable benefit in respect of the purchase of the television from SharpSult pic in the tax year 2022/23? £ F What is the amount of Kim’s taxable income for the tax year 2022/23? £12,340 @ 4 £13,080 on £25,510 5 £25,650 Assuming that Kim and Richard make a marriage allowance election in respect of the tax year 2022/23, match the correct tax impact to each individual. Richard Kim Personal alowancte reduced by £870 Personal allowance reduced by £1,260 Personal allowance increased by £870. Personal allowance mcreased by £1,260 Inoome tax fisbility reduced by £174 Income tax liability reduced by £252 30 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 78 78 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 INCOME TAX BASICS AND INCOME FROM SELF-EMPLOYMENT 58 FOO DEE (ADAPTED) On 31 December 2022 Foo Dee resigned as an employes of Gastronomic Food pic and on i January 2023 Foo commenced self-employment running her own restaurant, preparing accounts to 30 September. The following information is available for the tex year 2022/23; Employment During the period 6 April 2022 to 31 December 2022 Foo edmed a salary of £38,000 and was provided with the following benefits: 1s Acar with CO) emissions of 137 grams per kilometre and a jist price of £19,000, Foo was also provided with all diesel fuel for the car. The car does not meet the ROE2 standard. 2 Gastronomic Food pic pald Foo £6 par night to cover incidental expenses when she was working away in the UK for 14 nights, 3 The company contributed 6% of Foo’s gross salary of £38,000 into Gasironomic-Food pic's occupational pension scheme. Self-employment i Foo’s statement of profit or loss for her restaurant business for the nine-month period ended 30 September 2023 Is as follows: £ Gross profit Depreciation £ 202,054 3,500 Legal feas (Note 2) Property expenses (Note 3) 4,200. 12,800 Other expenses {all allowable} 50,700 (71,200) Net profit 130,854 Lagat fees Include conveyancing fees of £1,400 for the purchase of the restaurant, Foo purchased a 10 year old restaurant on 1 January 2023. She lives in a flat that is situated above the restaurant, and one quarter of the totel property expenses of £12,800 relate to this flat. 4 On 30 September 2023 Foo purchased a car with CO, emissians of 40 grams per kilometre for £14,600, Private use of the car by Foo bs 30%, Foo never had to complete a tax return whilst she was employed by Gastronomic Food pie. KAPLAN PUBLISHING 31 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 79 79 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2622) 1 Which TWO.of the following staternents concerning the taxable benefits in respect of the company car for the tax year 2022/23 are correct? A Foo will have a car benefit of £4,560 B Foo will have a car benefit of £5,130 C Foo will have a car benefit of £6,840 D = Foo will have a fuel benefit of £6,072 E Foo will have a fuel benefit of £5,831 F Foo will heve a Fuel benefit of £9,108 How much is the total taxable benefit for the payment of the overnight expenses and the pension contribution by the company for the tax year 2022/23? A 8 B&B c £14 D £2,354 What is Foo’s taxable trading profit before capital allowances for the nine-month period ended 30 September 20237 What is the maximum capital allowances dalm that Foo can make In respect of the nine-month period ended 30 September 20237 A £1,360 B £1,971 C £1,840 BD £460 Foo has not previously been required to submit a tax return to HMIRC. By what date must Foo Inform HMRC of her new source of self-employment income and what is the filing date for the first tax return that includes income from selfemployment? Select the appropriate box from the table below. _inform HARE of new source ofincome| 30 September 2023 | 5 October 2023 First tax retum | 2 January 2024 A 8 filing date Cc D 31 Jarwary 2025 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 80 80 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 PRACTICE SECTION C CONSTRUCTED RESPONSE QUESTIONS INCOME TAX BASICS AND EMPLOYMENT INCOME 99 JASON ret Walk in the footsteps of a top tutor This scenario relates to three requirements. You should assume thet today’s date & 15 February 2022. Jason Is currently employed by Initial ple as a sales manager, but he is considering resigning on 14 March 2022 and taking up an offer of employment with Subsequent ple which would commence on 1S March 2022. If employed by Subsequent pic, Jason wi? receive a higher base salary and more benefits compared to if he remains employed by Initial ple, However, Jason wants to know how much more income tax he will have to pay for the tax year 2022/23 should he take up the new offer of employment. The following information is avaiable for the tax year 2022/23: Initial ple 1 \fason remains employed by Initial ple, rather than taking up the offer of employment with Subsequent plc, he will be paid 3 gross annual salary of £180,000 during the tax year 2022/23 Jason will contribute a total of £8,000 inte Initial ple’s occupational pension scheme. 3 In addition to hts salary, Jason expects to De paid the following bonuses by Inithal pk: Amount | Dateofpayment £22,000 | 30 April 2022 £24,000 4 | 30 April 2023 Date of entitlement | in respect of the year ended 15 March 2022 31 January 2022 1S March 2023 — 33 January 2023 Throughout the tax year 2022/23, Jason will be providec with free meals in Initial plc’s staff canteen, The total cost of these meals to the company will be £1,449, Free meals in the staff canteen are available to all of Initia! ple’s employees. Subsequent ple Bt if Jeson takes up the offer of employment with Subsequent pk, Tren he will be pald a gross annual salary of £205,000 during the tax year 2022/23. 2 Subsequent ple will contribute a total of £9,000 into the cornpany’s occupational pension scheme on Jason's behalf. 3 Throughout the tax year 2022/23, Jason will be provided with a hybrid-electris car, which has a list price of £62,500 and an official CO, emission rote of 25 grams per kilometre. Ithas an electric range of 25 miles, Jason will not be provided with any fuel for private journeys. 4 For the period 6 April to 31 July 2022, Subsequent pic will provide Jason with living accommodation in a property purchased by the company In 2012 for £140,000. The property will be valued at £285,000 on 6 April 2022. Improvements casting £17,000 were made to the property during August 2020. The annual value of the property is £4 800. KAPLAN PUBLISHING 33 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 81 81 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) s On 1 August 2022, Subsequent pic will provide Jason with an interest-free loan of £140,000 to help him purchase a main residence. No loan repayments will be made before 5 April 2023. Where possible, Subsequent pic will payroll the taxable benefits providedto Jason so that the related income tax liability will be collected under PAYE along with the tax on his salary. Jason will not have any other Income for the tax year 2022/23. Required: (2) State one advantage and one disadvantage for an employee if their employer payrolls the taxable benefits provided to the employee. El (b) (2 marks) Calculate how much more income tax Jason will have to pay for the tax year 2022/23 Hf he takes up the offer of employment with Subsequent plc rather than remaining employed by initial pic, Notes: (ce) 1 Your answer should be based on separate calculations of Jason’s employment income for the tax year 2022/23 under each employment alternative. 2 You should indicate by the use of zero (0) any items which are not taxable or deductible. 3 You are not required to calculate Jason’s nationel insurance contributions (nics). {11 marks) If Jason decides to resign as an- employee of Initial pic on 14 March 2022, briefly explain the main content and purpose of PAYE form P45. fl (2 marks} (Total: 15 marks) 100 POPPY This scenario relates to three requirements. Poppy is employed by Zune pic and she is also a member of a partnership. The following information is available: Employment 1 2 During the tax year 2022/23, Poppy was paid a gross annual salary of £65,000 in respect of her employment with Zune pic. During the period from 1 August 2022 to 5 April 2023, Zune pic provided Poppy with = diesel car which has a list price of £21,800. The car cost Zune plc £20,600, and it has an official CO; emission rate of 75 grams per kilometre. The car does not meet the real driving emissions 2 (RDE2) standard. Poppy was not provided with any fuel far private use. 3 Throughout the tax. year 2022/23, Zune plc provided Poppy with two mobile telephones, The telephones had each cost £480 when purchased by the company in March 2022. 4 34 Ail of the taxable benefits provided by Zune pic to Poppy are payrolled. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 82 82 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX 4ND NATIONAL INSURANCE QUESTIONS : SECTION 1 Partnership i Poppy has been in partnership with Rose and Teasel since 6 April 2014, but Tease! resigned as a partner on 6 July 2022. The partners have always shared profits equally. 2 For the year ended 5 April 2023, the partnership had a tax adjusted trading loss of £19,500. This figure is before taking account of capital allowances. 3 The only item of plant and machinery owned by the partnership is a car with a CO; emission rate of 90 grams per kilometre, The car was used by Poppy and 70% of the mileage was for private journeys. The written down value of the car as at 6 April 2022 was £8,400. The cor was sold on 31 July 2022 for £5,400 and was not replaced. UK Government securities (gilts) On 1 January 2023, Poppy purchased, for £50,000, gilts with a nominal value of £40,000. The gits paid interest at the rate of 3%, with interest paid half-yearly on 30 June and 31 December based on the nominal value Poppy sokd the gilts on 31 March 2023 for £50,300 (including accrued interest), Balancing payment for tax year 2021/22 Poppy filed her self-assessrnent tax return for the tax year 2021/22 by the filing date, but did Not make the balancing payment of £2,600 until 31 August 2023. She was not required to make any payments on account, Required: {2) Assuming that Poppy claims loss relief against her total income for the tax year 2022/23, calculate her taxable income for this tax year. (10 marks) {b} Explain how Poppy's income tax lability in respect of her taxable benefits for the tax year 2022/23 will have been collected, and if any forms containing details of these benefits will have been reported to HM Revenue and Customs (HMRC). (2 marks) (c) Adcivise Poppy of the Interest and penalties that will be charged by HM Revenue and Customs (HMRC) as a consequence of her not making the balancing payment for the tax year 2021/22 until 32 August 2023. (3 marks) {Total: 15 marks) 101 KIONI ref] Walk in the footsteps af a top tutor This scenario relates to one requirement. You should assume that today’s date & 1 March 2023. Kioni is the managing director of, and 100% shareholder in, Nikio Ltd. Nikio Ltd has no other employees. For the yeer ending S April 2023, Nikio Ltd's tax adjusted trading profit, after taking account of director's remuneration and employer's class 1 national insurance contributions (NIC), is forecast to be £100,000. Nikis Ltd will pay Kioni gross director's remuneration of £47,500 and dividends of £63,000 for the tax year 2022/23. Kioni does not have any other income. KAPLAN PUBLISHING 35 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 83 83 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION (FA2022) Based on these figures, the tax and NIC for Kioni and Niklo Ltd for the year ending 5 April 2023 will be: Kioni Income tax Employee class £31,807 NIC £4,628 Employer class 1 NIC £5,779 Corporation tax £19,000 Nikio Ltd Kion| is concerned that she has not been saving for her retirement, so she is therefore planning to make a gross pension contribution of £20,000 before $ Apnil 2023 (during the tax year 2022/23), However, Kioni is unsure whether the pension contribution should be made by Nikio Ltd or made oersanally by her: 1 If the pension contribution is made by Nikio Ltd, the company will make a pension contribution of £20,000 into a cormpany pension scheme on Kioni’s Behalf. 2 ifthe pension contribution is made by Kioni personally, Nikio Ltd will pay her additional director's remuneration of £20,000 for the tax year 2022/23, and Kioni will then make @ personal pension contribution of £20,000 |gross)}. Required: For each of the two alternative ways of Kioni making a pension contribution of £20,000 (company pension scheme or additional director's remuneration and then Kioni personally making 2 personal pension contribution}, calculate revised figures for each of the four tax and NIC figures already calculated for the year ending 5 April2023. & Notes: 1 Under the additional director's remuneration and personal pension contribution alternative, you are expected to produce full income tax and employee class 1 NIC computations. 2 Happlicable, you should state if any of the four tax and NIC figures already calculated remain unchanged. 3 You should assurne that the rate of corporation tax remains unchanged. (Total: 10 marks) 102 PATIENCE (ADAPTED) oe} Walk in the footsteps of ¢ top tutor This scenario relates to one requirement, Patience retired on 31 December 2022, and on that date ceased employment anc self- employment. The following information 6 available in respect of the tax year 2022/23; Employment 1 Patience was employed by a private school as a Leacher. From 6 April to 31 December 2022, she was paid a Salary of £3,750 per month. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 84 84 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 2 During the period 6 April to 31 December 2022, Patience contributed 6% of her monthly gross salary of £3,750 into her employer's occupational pension scheme. Patienos’s employer contributed a further 10% on her behalf. 3 During the period 6 Aprilto 30 June 2022, Patience’s granddaughter was provided with a free place at the private school run by Patience’s employer. The normal fee payable would have been £4,600. The edditional marginal expense of providing the place for the grandchild was E540, 4 On 25 June 2022, Patience was given a clock valued at £600 as an award for her 25 years of teaching at her emplicyer’s school, She has not previously recelved any similar awards, 5 Patience’s employer provided her with an interest-free loan so that she could purchase 2 Season ticket for the train to wark. The balance of the loan outstanding at 6 April 2022 was £8,000, and Patience repaid the loan in fullon 31 December 2022. Self-employment 1 Patience was self-employed as a private tutor. Her trading profit for the year ended 31 July 2022 was £14,900, This figure is after taking account of capital allowances. 2 Pathence’s trading polit for the final five-month period of trading from 1 August to 31 December allowances, 2022 wos £6,900, This figure is before teking account of capital 3 = The tax written down value of the capital allowances main pool at 1 August 2022 was £2,200. On 10 August 2022, Patience purchased a laptop computer for £1,700, On the cessation of trading, Patience personally retained the laptop computer. Its value on 31 December 2022 was £1,200, The remainder of the ems included in the malin pool were sold for £800 on 31 December 2622. 4 Patience has unused overlap profits brought forward of £3,700. Personal pension contributions During the period 6 April to 31 December 2022, Patience contributed a total of £3,600 (net) into a personal pension scheme. Pension income During the period 1 January to 5 April 2023, Patience received the state pension of £1,450, a pension of £6,000 from her employer's occupational pension scheme, and a private pension of £3,300. These were the total gross amounts received. Property Patience owned two residential properties, which were let out uniurnished untill both properties were sold on 31 December 2022. The following information is available in respect of the two properties: Property one Property two £ Rent recelved during the tax year 2022/23 Sale proceeds on 31 December 2022 E 3,600 7,200 122,000 98,000 Allowable revenue expenditure paid during the tax yeor 2022/23 (4,700) (2,600) Purchase cost (81,400) (103,700) Patience has never occupied either of the two properties as her main residence. KAPLAN PUBLISHING 37 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 85 85 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) Required; Calculate Patience’s income tax and capital gains tax liabilities for the tax year 2022/23. Notes: 1 You should indicate by the use of zero (0} any items which are not taxable or deductibie. 2 The following mark allocation |s provided as guidance for this question: Income tax Capital gains tax {13 marks) (2 marks) (Total: 15 marks} 103 KAGAN This scenario relates to four requirements. You should assume that today’s date i 4 April 2022. On 2 April 2022, Kagan inherited some quoted ordinary shares valued at £510,000 following the death of his aunt. Kagan Is unsure whether to retain the shares or sell some of them in order to make some alternative investments. Kagan is aged 61 and is an additional rate taxpayer. Prior to the inheritance, his taxable income, consisting entirely of ernployment income, for the tax year 2022/23 would have been £400,000. The income tax lability on this Income for the tax year 2022/23 would have been £164,960. Pdor to receiving the Inheritance, Kagan’s chargeable estate for inheritance tax (IHT) purposes was valued at £1,700,000, IHT of £550,000 would be payable were he to die in the near future. Retain the Inherited shares if Kagan simply retains the inherited chares, then he will receive dividend income of £15,300 during the tax year 2022/23. This Is in addition ta his employment Income of £400,000, Sell some inherited shares and make four altemative investments Kagan is considering selling some of his inherited shares (for which there has only been a minimal increase in value since he inherited them) to fund the following four investments, all of which will be made at the start of the tax year 2022/23: 1 Kagan will make » gross personal pension contribution of £100,000. Kagan is a member of a pension scheme, but has not mada any contributions in recent years because his incomes has been substantially lower than it is for the tax yoar 2022/23. He therefore has sufficient unused annual allowances to cover a pension contribution of £100,000. Kagan will knmediately withdraw £25,000 of the pension fund tax-free. This & the permitted 25% tax-free lump sum. However, no pension will be taken during the tax year 2022/23. 2 Kagan will invest £50,000 in premium bonds. The expected amount of premium bond prizes which will be received during the tax year 2022/23 ts E7U0. 3 Kagan will invest the maximum permitted emount of £20,000 in a cash individual savings account (ISA). The ISA will pay interest of £400 during the tax year 2022/23. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 86 86 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 4 INCOME TAX 4ND NATIONAL INSURANCE QUESTIONS : SECTION 1 Kagan will purchase a freehold property for £295,000 (including all costs of purchase), The property will be fet out unfurnished, with Kagan receiving property income of £9,600 during the tax year 2022/23. After making these four Investments, Kagan will be Jeft with £55,000 of inherited shares, on which he will receive dividend incorne of £1,980 during the tax year 2022/23. He will also have his employment income of £400,000, Kagan will not make any other disposals during the tax year 2022/23. (2) Calculate Kagan’s revised income tax liability for the tax year 2022/23 if he retains the inherited shares. 4 {b> {i} (1 mark) Explain why little or no capital gains tax (CGT) will be payable if Kagan sells some of his inherited shares. {ii) (1 mark) Caleulate Kagan’s revised income tax liability for the tax year 2022/23 if he sells some of his inherited shares and makes the four alternative investments. 4 Notes: 1 For this part of the question, you are expected to produce a full Income tax computation. 2 {ec} You should indicate by the use of zero (0) any items which are not taxable. (6 marks) For each of the four alternative investments (pension contribution, premium bonds, ISA and freehold property) state whether the investment will reduce Kagan’s potential IHT liability compared to him retaining the inherited shares. WW Note: For this part of the question, mo computations are required. (2 marks) (Total: 10 marks) 104 DILL (ADAPTED) @ Walk in the footsteps of a top tutor This scenario relates to two requirements, Up to and including the tax year 2020/21, Dill was always resident in the United Kingdom (UK), being in the UK for more than 300 days each tax year. She was also resident in the UK for the tax year 2022/23, However, during the tox year 2021/22, Dill was overseas for 305 days, spending just 60 days in the UK. Dill hasa house in the UK and stayed there on the 60 days which she spent in the UK, She also has a house overseas. For the tax year 2021/22, Dill did not have any close family in the UK, did not do any workin the UK and was not treated as working full-time overseas. On 6 April 2022, Oill returned to the UK and commenced employment with Herb pic as the IT manager. She also set up a small technology business, which she ran on a self-employed basis, but this business failed and Dill ceased self-employment on 5 April 2023. The following information is available for the tax year 2022/23: Employment 1 During the tax year 2022/23, Dill was paid a gross annual salary of £290,000. KAPLAN PUBLISHING 39 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 87 87 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) 2 In addition to her salary, Dll has been pald the following bonuses by Herb plc: Amount t 16,200 29,300 3 Dateofpsyment 31 December2022 3) April 2023 Bate of entitlement in respect of the four months ended iNovember2022 1 March 2023 31 July 2022 30 November 2022 Throughout the tax year 2022/23, Dill had the use of Herd pie’s company aym which Is only open to employees of the company. The cost to Herb ple of providing this benefit was £780. 4. Throughout the tax year 2022/23, Herb pic provided Dill with a home entertainment system for her personal use. The home entertainment system cost Herb pic £5,900 on 6 Aprit 2022. 5 During the tax year 2022/23, Dill’s three-year-old son was provided with a place at Herb ple’s workplace nursery. The total cost to the company of providing this nursery place was £7,200 (240 days at £30 per day), 6 On 1 June 2022, Herb pic provided Dill with an interest-free loan of £80,000, which she used to renovate her main residence. No loan repayments were made before 5 April 2023, 7 On 25 January 2023, Herb pic paid 2 health club membership fee of £990 for the benefit of Dill. 8 During the tax year 2022/23, Dill used her private car for both private and business journeys. The total mileage driven by Oill throughout the tax year was 16,000 miles, with ell of this mileage rcimbursed by Herb ple at the rate of 25p per mile. However, only 14,500 miles were in the performance of Dill's duties for Herb plc 3 During the tax year 2022/23, Dill contributed the maximum possible tax rellevable amount into Herb pic’s money purchase occupational pension scheme. The company aso comr@uted £9,000 on her behalf. Dill first became a member of a personal pension scheme in the tax year 2021/22 and had an unused annwal allowance brought forward of £19,000. Self-employment For the tax year 2022/23, DI¥’s self-employed business made a tax adjusted trading loss of £58,000. Dil will claim relicf for this loss against her total income for the tax year 2022/23. Other income 1 On 2 November 2022, Dill received a premium bond prize of £1,000. 2 On 28 February 2023, Dill received interest of £1,340 on the maturity of savings certificates from NS&| (National Savings and Investments). Required: (a) =~ Exploin why Dill was treated as not resident in the United Kingdom for the tax year 2021/22. & (3 marks} (b) = Calculate Dill’s taxzble income for the tax year 2022/23. 52 Note: You should Indicate by the use of zero (0) any items which are not taxable or deductible. {12 marks) (Total: 15 marks) 40 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 88 88 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 105 INCOME TAX 4ND RICHARD TRYER (ADAPTED) te NATIONAL |NSURANCE QUESTIONS : SECTION 1 Walk in the footsteps ofu top tutor This scendrio relates to one requirement. Richatd Tryer is employed by Prog pic as a computer programmer, Richard has tried to prepare his awn income tex computation for the tax year 2022/23, but he has found it more difficult than expected. Although the sections which Richard has completed are correct, there are a significant number of omissions. The omissions are marked a5 outstanding (0/5). The partly completed income tax computation is a3 follows: Richard Tryer income tax computation — 2022/23 Property income Building society interest Dividends Personal allowance Taxable income £ 37,700 OfS at OFS 3t O/S at O/S at at 20% 40% O% 40% O% O/S at 33.75% 7 Notes Employment income Salary Car benefit Fuel benefit Living accommodation 41,036 o/s o/s O/S o/s O/S 1,260 5400 o/s (12,570) O/S 7,540 o/s o/s o/s o/s o/s o/s income tax liabifity less: PAYE Income tax payable oO/S (19,230) o/s Note 1 ~ Car and fuel benefits Throughout the tax year 2022/23, Prag pic provided Richard witha petrol car which has a list price of EL7,900, The car cost Prog ple £17,200, and it has 3 CO, emission rate of 109 grams per kilometre. During the tax year 2022/23, Richard made contributions of £1,200 to Prog plc for the use of the car. KAPLAN PUBLISHING 41 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 89 89 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION (FA2022) During the period 1 July 2022 to 5 April 2023, Prog pic also provided Richard with fuel for private journeys. The total cost of fuel during this period was £4,200, of which 45% was for private journeys. Richard did not make any contributions towards the cast of the fuel, Note 2 = Living accommodation Throughout the tax year 2022/23, Prog pie provided Richard with Wing accommodation, The property has been rented by Prog pic since 6 April 2022 at a cost of £1,100 per month. On 6 April 2022, the market value of the property was £122,000, and it has an annual value of £8,600. On 6 April 2022, Prog ple purchased furniture for the property at a cost of £12,100. The company pays for the running costs relating to the property, and for the tax year 2022/23 these amounted to £3,700, Note 3 ~ Property income Richard owns a freehold shop, which is let out unfurnished, The ten year old shop was purchased by Richard on 1 October 2022. Richard spent £8,400 replacing the building’s roof: the shop was not usable unté this work was completed on 30 November 2022, and this fect was represented bya reduced purchase price. On 1 December 2022, the property was let to a tenant, with Richard recelying a premium of £12,000 for the grant of 2 30-year lease. The monthly rent ts £664 payable in advence, and during the period 1 Decernber 2022 to 5 April 2023 Richard received five rental payments. Due to a fire, £8,600 was spent on repairing the celling of the shop during February 2023. Only £8,200 of this was paid for by Richard's property insurance. Richard paid insurance of £501 in respect of the property. This was paid on 1 October 2022 and & for the year ended 30 September 2023. Required: Calculate the income tax payable by Richard Tryer for the tax yeor 2022/23, fi (15 marks) 106 PETULA (ADAPTED) we Walk in the footsteps ofa top tutar This scenario relates to two requirements. Petula has been employed as 3 sales manager by Downtown ple since 6 Apri’ 2013, The following information is available in respect of the tax year 2022/23:> 1 During the tax year 2022/23, Petula was pald a gross annual selary of £270,000, 2 In addition to her salary, Petuts has been paid the following bonuses by Downtown ple: Amount 42 Date of payment Date of entitlement in respect of the sixmonth period ended £ 21,200 30 April 2022 1 April 2022 31 December 2021 18,600 22,000 31 October 2022 30 April 2023 1 October 2022 1 April 2023 30 June 2022 31 December 2022 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 90 90 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 During the tex year 2022/23; Petula used her privete car for both private and business journeys. The total mileage driven by Petula throughout the tax year was 26,000 miles, with all of this mileage reimbursed by Downtown ple at the rate of 60p per mile. However, only 21,000 miles were in the performance of Petula’s duties for Downtown pic. Petule pays an annual professional subscription of £630 which & relevant to her employment with Downtown pic. Petula also pays an annual subscription membership fee of £1,840 to a golf dub which she uses to entertain Downtown plc's clients, Downtown pic does not reimburse Petula for alther of these costs. During the tax year 2022/23, Petula paid interest of £140 on a personal Joan taken out on 6 April 2021 to purchasea computer for sole use in her employment with Downtown pic, Each tax year since 6 April 2013 {inchiding the tax year 2022/23), Downtown pic has comtributed £30,000 Into the company’s money purchase occupational pension schame on Petula's behalf. Petula has never personally made any pension contributions and her adjusted Incame in all tax years prior to 2022/23 never exceeded £240,000. Petula owns a freehold house which was let out furnished throughout the tax year 2022/23 The total amount of rent recelved during the tax year was £12,000. During August 2022, Petula purchased a new washer-dryer for the property at a cost of E730, This was a replacement for an old washing machine which wes scrapped with nil proceeds. The cast of a similar washing machine would have been £420, During November 2022, Petula purchased a new dishwasher for the propertyata cost of £580. The property did not previously have a dhwasher, The other expenditure on the property for the tax year 2022/23 amounted to £1,640, and all of this is allowadle. During the tax year 2022/23, Petula rented out one furnshed room of her main residenceDuring the year, she received rent of £8,900 and incurred alowable expenditure of £2,890 in respect of the room, Petula always uses the most favourable basis as regards the tax treatment of the furnished room, On 4 July 2022, Petula purchased £250,000 (nominal value) of gits paying interest at the rate of 3% for £300,000. Interest is paid half-yearty om 30 June and 31 December based on the nominal value, Petula sold the gilts on 31 October 2022 for £302,500 {including accrued interest). Required: {2} Calculate Petula’s taxable income for the tax year 2022/23. Hi Note: Your computation should list all of the items referred to in notes 1 to 9, indicating with the use of zero (0) any items which are not taxable or deductible. (12 marks} {b) Advise Petula of the total amount of her unused pension annual allowances which are available to carry forward to the tax year 2023/14. fl {3 marks) (Total:15 marks} KAPLAN PUBLISHING 43 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0.…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0....ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 91 91 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) 107 TONIE (ADAPTED) This scenario relates to three requirements. Up to and including the tax year 2020/21, Tonie was resklent in the UK for tax purposes, spending more than 300 days In the UK each year. Tonle understands that for the tax year 2022/23, she will again automatically be treated as resident in the UK, but is ursure of her residance status for the tax year 2021/22. For this tax year, Tonie was naither automatically resident in the UK nor automatically not resident. Throughout the tax year 2021/22, Tonle was travelling around the world and did not stay in any one country for longer than 30 days, although she did spend a total of 50 days in the UK. Tonae hasa house in the UK, but it was let out throughout the tax year 2021/22. She is single, has no children, and stayed with a friend on the 50 days that she spent In the UK. Tonle did not do any substantive work in the UK during the tax year 2021/22, The following information is available for the tax year 2022/23; Employment On 6 April 2022, Tonle, who & a software developer, accepted a one-year contract to maintain websites for Droid pic. Droid plc treated the contract as one of employment, with the payments to Tonle being subject to PAYE. However, Tonie thought that, because she was working from home, her employment status should instead have been one of selfemployment. - For the term of the contract, from 6 April 2022 to 5 April 2023, Tonle was paid a fixed gross amount of £5,200 a month. During the term of-the contract, Tonle was not permitted to work for any other clients, She was required to. do the work personally, not being permitted to sub-cortract the work to anyone cise. 2 During the term of the contract, Tonie worked from home, but had to attend weekly meetings at Droid pic's offices to receive instructions regarding the work to be performed during the following week. During the period 6 April 2022 to 5 April 2023, Tonie used her private car for business visits to Droid pic’s dients. She drove 2,300 miles, for which Droid plc paid an allowance of 60. pence per mile. 3 During the term of the contract, Tonie leased computer equipment at 2 cost of £180 a month, This was used 100% for business purposes. Property income 1 Tonle owns a freehold house which is let out (this is not a furnished holiday letting}. The total amount of rent received during the tax year 2022/23 was £10,080. 2 Tonie portly financed the purchase of the property with a repayment mortgage, paying mortgage interest of £4,200 during the tax year 2022/23. 3 During May 2022, Tonie purchased 6 new washer-dryer for the property at a cost of £640. This wes a replacement for an old washing machine which was scrapped, with nil proceeds. The cost of a similar washing machine would have been £380, 4 During November 2022, Tonie purchased a new dishwasher for the property at a cost of £560. The property did not previously have a déhwasher. s The other expenditure on the property for the tax year 2022/23 armounted to £1,110, and this [5 all allowable. 44 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 92 92 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 6 INCOME During the tax yeer TAX 4ND 2022/23, NATIONAL Tonle rented INSURANCE out one QUESTIONS furnished room : SECTION of her 1 main reskience. During the year, she received rent of £8580 and masred allowable expenditure of £270 in respect of the room. Tone always uses the most favourable basis as regards the tax treatment of the furnished room Other income i On 1 July 2022, Tonie inherited £100,000 [nominal value) of gaits paying Interest at the rate of 3%, The inheritance wes valued at £120,000. Interest is paid half-yearly on 30 June and 31 December based on the nominal value. Tone sold the gitts on 30 November 2022 for £121,250 {including accrued interest). On 31 January 2023, Tonle received a premium bond prize of £100, On 31 March 2023, Tonle recelved interest of £520 on the maturity of savings certificates fram NS&! (National Savings and Investments}. Required: (a) {b) Explain why Tonie was treated as not resident in the UK for the tax year 2021/22, Sl (2 marks) List FOUR factors which are Indicators of Tonle boing treated as employed in relation to her contract with Droid pic rather than as self-employed. El Note: You should confine your answer to the information given In the question. (2 marks} {c} On the basis that Tonle Is treated as employed in relation to her contract with Drold ple, calculate her taxable income for the tax year 2022/23, aH Note: You should Indicate by the use of zero (0) any iterns which are not taxable or deductible. (11 marks) (Total: 15 marks) 108 KAT (ADAPTED) ee Walk in the footsteps of a top tutor This scenario relates to two requirements. You should assume that today’s date is 15 March 2022. On 6 April However, company. and letting 2022, Kat will purchase a residential freehold property which she will let out. Kat ts unsure whether to purchase the property personally of via a limited The limited company would be incorporated for the sole purpose of purchasing out the property, and Kat would bold all of the shares in the compeny. Regardless of whether the property is purchased personally or via a limited company: i The property will be let throughout the year ended 5 April 2023 at a monthly rent of £2,600. 2 the purchase of the property will be partly financed with a repeyment mortgage, Mortgage interest of £12,000 wil! be paid during the year ended 5 April 2023. 3 The other expenditure on the property for the year ended 5 April 2023 will amount to £4,600, and this will all be allowable, 4 Kat will also have employment income of £60,650 for the tax year 2022/23. KAPLAN PUBLISHING 45 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 93 93 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) If the property |s purchased via a limited company, then the company’s corporation tax Bability for the year ended 5 April 2023 will be €2,774 and Kat will withdraw dividends from the company totalling £6,000 during the tax year 2022/23. Kot will not heve any other income for the tax year 2022/23. Required: {a} + Determine if there will be an overall saving of tax for the year ended 5 April 2023 if Kat purchases the property via a limited company rather than purchasing It personally, Notes: 1 Your answer should include a calculation of Kat's income tax liability if che purchases the property personally and if she purchases it via 2 limited company; 2 (b) You should ignore national insurance contributions (NICs). {9 marks) Explain ONE way In which the calculation of a future taxable gain on a property disposal made by the limited company would differ from the cakulation of a taxable gain ona disposal made personally by Xat. El (1 mark) (Total; 10 marks} INCOME TAX BASICS AND INCOME FROM SELF-EMPLOYMENT 109 CAROL COURIER (ADAPTED) This scenario relates to three requirements. For the purposes of this question you strould assume that today’s date is 15 March 2022; Carol Courier is employed by Quick-Speed pic as a delivery driver, and Is paid a salary of £44,000 per year. She contributes 5% of her gross salary into Quick-Speed plc's occupational ponsion scherne. As an altcmative to being employed, Quick Speed pie have offered Carel the opportunity to provide delivery services to the company ona self-employed basis The details of the proposed arrangement for the year ended 5 April 2023 are as follows: 1 Carol will commence being self-employed on & April 2022. Her income from Quick-Speed pic ts expected to be £47,000. 3 Caral will also provide delivery services to other cllents. Her incorme From these contracts is expected to be £13,000. 4 Carol wall lcase a delivery van and 100% of the milcage will bc For business purposes. The cost of leasing and running the van will be £4,400. 5 When she ts unavallable Caro! will have to provide a replacement driver to deliver for Quick-Speed pic. This will cost her £2,800, 6 Carol will contribute £3,000 (grass) into a personal pension scheme during the tax year 2022/23. This will provide her with the same benefits as the cocupational pension scheme provided by Quick-Speed pic. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 94 94 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 Required: (a) Assuming that Carol does not accept the offer from Quick-Speed ple and continues to be employed by the company, calculate her Income tax and class 1 NIC Hability for the tax year 2022/23, Ha (5 marks} (b) Assuming that Carol accepts the offer to provide delivery services to Quick-Speed ple on a self-employed basis from 6 April 2022 onwards, calculate her income tax, class 2 NIC and class 4 NIC liabilities for the tax year 2022/23. & (c} (6 marks) Advise Carol as to whether it will be beneficial to accept the offer to provide delivery services to Quick-Speed pic on a self-employed basis. Oo Your answer should be supported by a calculation of the amount by which Carol's income for the tax year 2022/23 (net of outgoings, income tax and NIC) will increase or decrease if she accepts the offer. (4 marks) (Total: 15 marks} 110 IDRIS WILLIAMS (2) fe Walk in the footsteps of a top tutor This scenario relates to one requirement. Idris Williarns has opened a small bed and breakfast and is considering whether to prepare his accounts to 5 April or 30 June. Required: Advise Idris of the advantages for tax purposes of choosing an accounting date of either 5 April or 30 June, bed (4 marks) (b} This scenario relates to three requirements. Idris commenced trade on 6 April 2022 and has decided to prepare his fist set of accounts to § April 2023, The following information & available regording his statement of profit or boss for the first year of trading: Notes Revenue Less: Food, utilities and other household goods £ £ 1 49,910 2 (17,660) Gross profit 32,250 Expenses: Depreciation 3 1,250 Car expenses 4 9,240 Other expenses 5 1,485 — Net profit KAPLAN PUBLISHING (12,075) 20,175 47 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 95 95 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK= TAXATION (FA2022) Notes: 1 Revenue includes £10,275 which ts still receivacie at 5 April 2023. 2 Idris paid for 95% of his purchases of £17,660 by 5 April 2023 and the remeinder in May 2021. There is no closing inventory at S April 2023. Idris is fiving in part of the bed and breakfast and £4,500 of the purchases peid for during the period relate to Idris’s personal use. 3 The depreciation charge relates to furniture bought in the period for £3,500 and acar purchased on 6 April 2022 for £9,000. The car has CO; emissions of 35 grams per kilometre, 4 5 The car expenses of £9,340 relate to Idris’ car and in the period he drove 13,000 business miles and 70,000 riles in tetal. The other expenses are all allowable for tax purposes, £400 of these expenses was unpaid at 5 April 2023. The cash basis private use adjustment for one occupant in a business premises for a 12 month period is £4,200, Required: 1 Calculate Idris’ tax adjusted trading profit for the year enced & April 2023, assuming he uses the normal accruals basis. 2 2 (4 marks) State why Idris is entitled to use the cash basis and calculate Idris’ tax adjusted trading profit for the year ended 5 April 2023, assurning he uses the cash basis. BR 3 (6 marks) State which basis would be more beneficial for Idris for the tax year 2022/23. RR {1 mark) (Total: 15 marks) 111 ETHEL fe Wolk in the footsteps of o top tutor This scenario relates to two requirements. Ethe! Brown started to run a small bed and breakfast business as a sole trader on 6 Apri! 2022, She prepared her first accounts for the year to 5 April 2023. She has read about the cash basis of accounting and HMAC flat rate expense adjustments which are intended to simplify tax accounting for smal! businesses, inthe year to S April 2023 she has the following transactions: 1 2 Ethel earned income of £74,500 during the year. At S Apel 2023 £10,000 of the income was still outstanding, Payments of £25,000 in respect of food, utilities and other housemold costs. She lives in part of the bed and breakfast premises with her husband and two children and 35% of the food, utilities and other household costs relate to their prwate use. The HMRC flat rate private use adjustment for four occupants of business premises is £7,800. 48 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 96 96 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 3 INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 On i June 2022 Ethel pald a car dealer £14,000 by cheque for a car with CO: emissions of 40 grams per kilometre. She also made payments totalling £3,000 related to the running costs of the car for the year. She has used the car 40% of the time for private purposes and she drove 11,000 business miles during the year. 4 On 1 March 2023 she acquired an item of kitchen equipment for £380 on crecit terms, She paid the supplier's invoice on 15 April 2023, Required: (2) Calculate Ethel’s tax adjusted trading profit for the year ended 5 April 2023 assuming that she opts to prepare her accounts using the cash basis and the HMRC flat rate expense adjustments, Your answer should be supported with brief notes to explain how you have treated the transactions in Notes 1 to 4, Hi You should ignore VAT (b) (5 marks) Calculate Ethel’s tax adjusted trading profit for the year ended 5 April 2023 using the accruals basis. Hi You should ignore VAT (4 marks} {Total: 10 marks) ROBINETTE This scenario relates to three requirements. Robinette ceased self-employment on 30 June 2022. She was then employed by Bird pic for the sb-month period from 1 August 2022 to 32 January 2023. Robinette commences selfemployment agaitt, ina new business, on 1 February 2023. Self-employment ceasing on 30 June 2022 1 Robinette’s trading profit for the final 14-month period of trading from 1 May 2021 to 30 June 2022 was £106,900. This figure is before taking account of capital allowances, 2 The tax written down value of the capital allowances main pool at 1 May 2021 was £15,300. On 11 June 2021, Robinette purchased a laptop computer for £2,600. On the cessation of trading, Robinette personally retained the laptop computer. Its volue on 30 June 2022 was £1,750. The remaining tems Included in the main pool were sold for £7,300 on 30 tune 2022. 3 Robinette had unused overtap profits brought forward of £22,700- Employment from 1 August 2022 to 31 January 2023 i During the six-month periad from 1 August 2022 to 31 Januery 2023, Robinette was pald a gross monthly salary of £10600 In respect of her employment with Bird pic. 2 ‘Throughout the period from 1 August 2022 to 31 January 2023, Bird pe provided Robinette with living accommodation. The property is rented by Bird pic at @ cost of £690 per month (this ts higher than the annual value of the property). Bird pic also paid for the running costs relating to the property, and for the period 1 August 2022 to 31 January 2023 these amounted to £1,440, 3 Throughout the period from 1 August 2022 to 31 January 2023, Robinette’s two year oid son was provided with a piace at Bird pic's workplace nursery. The total cost to the company of providing this nursery place was £4,800 (120 days at £40 per day). KAPLAN PUBLISHING 45 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 97 97 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> 4 TAXATION ({F42022) Robinette used her private car for business purposes. Ouring the period from 1 August 2022 to 31 January 2023, she drove 5,200 miles in the performance of her duties for Bird ple, for which the company paid an allowance of 35 pence per mile. Self-employment from 1 February 2023 1 Robinette’s trading profit for the first five-rnonth period of trading from 1 February to 30 June 2023 was £55,700. This figure is before taking account of capital allowances. 2 The only item of plant and machinery owned by Robinette, and used in this business, is office equipment which was purchased for £26,200 on 1 February 2023. Property income 1 2 During the period 1 Auguet 2022 to 31 January 2023, Robmette let out her main residence at a monthly rent of £1,100. Robinette lived in this property up to 31 July 2022 and then again from 1 February 2023 onwards. The only expenditure incurred by Robinette in respect of the letting was property Insurance, which cost £624 for the year ended S April 2023, 3 Robinette has opted to calculate her property income using the accruals basis, Renta: room relief is not available in respect of the letting. Self-assessment tax return Robinette filed her self-assessment tax return for the tax year 2022/23 on 14 August 2023. She is quite confident that all! of her income for the tax year 2022/23 was correctly declared and that no deductions were incorrectly claimed. (a) Calculate Robinette’s taxable income for the tax year 2022/23. Note: You should indicate by the use of zero (0) any items which are not taxable or deductible. {12 marks) (b) (i) State the period during which HM Revenue and Customs (HPARC) will have to notify Robinette if they intend to carry out a compliance check in respect of her self-assessment tax return for the tax year 2022/23, and the likely reason why such a check would be made. bel (i) (2 marks) = Advise Robinette as to how long she must retain the records used in preparing her self-assessment tex return for the tax year 2022/23. El (1 mark) (Total: 15 marks) 113 GEORGE (ADAPTED) les Walk in the footsteps ofa top tutor This scenario relates to four requirements. You shauld assume that today’s date is 1 March 2022. George, a software develaper has accepted a one year contract to update software for Xpze pic. 1 50 The contract will run from 6 April 2022 to 5 April 2023, with a fee of £41,000 payable for the entire year of the contract. A condition of the contract ts that George will have to da the wark personally and not be permitted to sub-contract the work to anyone else. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 98 98 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 2 INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 George will work from home, but will have to attend weekly meetings at Xpee plic’s offices to receive instructions regarding the work to be performed during the following week 3 George will not incur any significant expenses in respect of the contract apart from the purchase of anew laptop computer for £3,600 on 6 April 2022. This laptop will be used 100% for busirvess purposes, 4 During the term of the contract, George will not be permitted to work for any other clents. He will therefore not have any other income during the tax year 2022/23. 5 George's tax Gability for the tex year 2021/22 was collected through PAYE, 50 he will not be required to make any payments on account in respect of the tax year 2022/23. George has several friends who are also software developers. He understands that his employment status is not clear cut but that his income ‘tax liability for the tax year 2022/23 will be the same regardiess of whether he is treated as employed or as self-employed, However, George appreciates that there are advantages to being classed as setf-employed. Required: (a) List FOUR factors which are indicators of George being treated as an employee in relation to his contract with Xpee pic rather than as self-employed. fal Note: You should confine your answer to theinformation given In the question. (2 marks} {b) Calculate George’s income tax Bability and national insurance contributions for the tax year 2022/23 Hf he Is treated as self-employed in respect of his contract with Xpee pic. B {c} (4 marks) if George is treated as being an employee of Xpee pic instead of self-employed: 1 2 Explain wehy his income tax liability will be payable earlier. El (2 marks) Calculate the additional amount of national insurance contributions which he personally will suffer for the tax year 2022/23. (2 marks) {Total: 10 marks) 114 FLEUR This scenario relates to one requirement. You should assume that today’s date is 25 March 2022. You are a trainee Chartered Certified Accountant dealing with the tax affairs of Fleur. Fleur has been self-ernployed since 6 April 2008 and has previousty asked you to calculate whether it would be beneficial to incorporate her business on 6 April 2022. The new limited company was to be called Flower Ltd. Fleur operating as 3 sole trader Her forecast tax adjusted trading profit was £100,000 for the year ending 5 April 2023. KAPLAN PUBLISHING 51 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 99 99 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) Fleur operating as a Wmited company Flower Lec's forecast tax adjusted trading profit for the year ending S April 2023 was £100,000. After taking account of Fleur’s director's remuneration of £35,000 and the related employer's class 1 national insurance contributions (NICs) of £3,898, this was to be £61,102 (£100,000 — £35,000— £3,898). Fleur would then have withdrawn £48,000 of the company’s profits es dividends. Fleur has ho other source of income, Based on these figures, you established that there was no tax benefit to incorporating Hew’'s business since the tax and NIC costs were higher. The supporting tax liabilities and NICs which you had correctly calculated were: | Operate as a sole £ Operate as a limited company £ trader | Income tax 27,4352 | Glass2 NICs 164 | Glass4 NICs 5,480 Income tax 15,681 Employee class 1 NICs 2,972 | Empllayer’s dass 1 NICs 3,898 Corporation tax | Total 11,609 33,076 Total 34,160 Change to the forecast figures Fleur has just signed a contract with6 new customer and has revised her forecast for the year ending 5 April 2023. Operating as a sole trader She now forecasts that her tax adjusted trading profit for the year ending S April 2023 willbe £135,000 rather than £100,000. Operating as a limited company The forecast tax adjusted trading profit for the year ending 5 Aprif 2023 will be £135,000 rather than £100,000. Director's remuneration will remain at £35,000, but Fleur will increase the dividends taken from Flower Utd to £70,000. Fleur wants to know whether the additional £35,000 of profit will now mean it is berrefidal to Incorporate her business on 6 April 2022. Required: Based on the increased tax adjusted trading profit of £135,000, calculate revised figures for each of the seven tax and national insurance contributions (NICs) figures already calcidsted for the year ending 5 April 2023, and show if there will be an overall cost or saving If she Incorporates the business on 6 April 2022. Notes: a 2 3 For each of the seven tax and NIC figures already calculated, you should show the revised amounts, stating # any remain unchanged. si For the income tax figures, computations. you are expected to produce full income tax You should assume that the rate of corporation tax remains unchanged. (Total: 10 marks) 52 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 100 100 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 115 PAUL oe INCOME TAX 4ND NATIONAL INSURANCE QUESTIONS : SECTION 1 Walk in the footsteps of o top tutor This scenario relates to one requirement. You should assume that today’s date 6 15 March 2022. Paul is the managing director of, and 100% shareholder in, Pabu Ltd For the year ended 5 April of director's remuneration, profits (after allowing for directors remuneration of 2023, Palu Ltd's tax adjusted trading profit, before taking account is forecast to be £175,000. Paul intends to extract all of Palu Ltd’s corporation tax). This will be achieved by paying himself gross £8,000 and dividends of £135,270. Pau! wants to know if it would be beneficial to cease trading via Palu Ltd on 5 Apel 2027, and instead run his business from 6 April 2022 onwards as a sole trader. His tax adjusted trading profit for the year ended 5 April 2023 woukd remain unchanged at £175,000. Pau! will not have any other income for the tax year 2022/23, Required: Determine whether or not there will be an overall saving of tax and national insurance contributions (NICs) for the year ended 5 April 2023 if Palu Ltd's business is instead run by Paul as a sole trader from 6 April 2022, & Notes: 1 You are expected to calculate the income tax payable by Paul, any NICs payable by Paul and Palu Ltd, and the corporation tax liability of Palu Ltd for the year ended 5 April 2023 assuming that he continues to run the business via the company. 2 You should then compare this total amount with the income tax and NICs payable by Paul assuming that he runs the business asa sole trader. 3 You should assume that the rate of corporation tax remains unchanged. {Total: 10 marks) 116 DEMBE (ADAPTED) This scenario relates to three requirements. You should assume that today’s date ls 15 February 2023. You are a trainee chartered certified accountant dealing with the tax affairs of Dembe and her husband Kato. Personal pension contribution Dembe ts self-employed and her trading profit for the year ended 31 December 2022 Is £130,900, She will not have any other income or outgoings for the tax year 2027/23, Dembe is planning 10 make 2 personel pension contibution cf £32,000 (met) before 5 Apel 2023, and would like to Know the amount of income tax end national insurance contributions (NICs) which she will save as a result of making the pension contribution, Sale of residential property During March 2023, Dembe is going to soll a resdontial property and this will result in a chargeable gain of £67,000 if she makes the disposal. KAPLAN PUBLISHING 53 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 101 101 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION ({F42022) Dembe wants to know whether it would be beneficial to transfer the property to Kato, her husband, as ano gain/no loss transfer poor to it bring sold during March 2023, The transter fromm Dembe to Kato will cost £2,000 in additional legal fees, and this cost will reduce the chargeable gain to £65,000 if the disposal is made by Kato OCembe has already made other disposals during the tax year 2022/23, which have utilised her enual exempt amount, Kato, however, has not yet made any disposals, Kato’s taxable income for the tax year 2022/23 is £21,350. Inheritance tax Dembe, who knows nothing about inheritance tax (IHT), is concerned about the amount of IHT which will be payable when she and Kato die. The couple’s combined chargeable estate © valued at £880,000 for IHT purposes. The estate Includes a main residence valued at £360,000. Under the terms of their wills, Dernbe and Kato have initially left their entire estates to each other, Then when the second of thern dies, the total estate of £880,000 will be left to the couple's children. The couple are not sure whether to change the terms of their wills so that assets worth £325,000 ere left to thelr chikdren when the first of them dies, Neither Demte nor Kato fave made any Sfetime gifts. Required: (a) Calculate the reduction in Dembe’s income tax liability and NICs for the tax year 2022/23 if she makes the personal pension contribution of £32,000 (net) before 5 April 2023. & Note; You are not expected to prepare full tax computations, (b) (4 marks) Calculate the couple's overall saving for the tax year 2022/23, after taking account of the additional legal fees of £2,000, if the residential propertyis transferred to Kato and sold by him, rather than the property being sold by Dembe. 2 (3 marks) {c) Calculate the amount of IHT payable, if any, were Dambe and Kato to both die in the near future, and explain whether or not it might be beneficial to leave assets worth £325,000 to their children when the first of them dies. BA Note: You should assume that the HT rates and thresholds remain unchanged. (3 marks) (Total: L0 marks) 117 FANG, HONG AND KANG re 2] Walk in the footsteps of a top tutor [= Answer debrief This scenario relates to two requirements. Fang commenced self-employment on 1 August 2020. She has a trading profit of £45,960 for the year ended 31 july 2021, and a trading profit of £39,360 for the year ended 31 July 2022 54 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 102 102 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 Required: 1 Calculate the amount of trading profit which will have been assessed on Fang for each of the tax years 2020/21 to 2022/23 (indusive), and state the amount of any overlap profit. 2 (3 marks) Explain how Fang would have obtained relief for trading expenditure incurred prior to 1 August 2020 and for computer equipment which Fang already owned which was brought into business use on 1 August 2020. E) (b} (2 marks) This scenario relates to one requirement, Hong has been in self-employment since 2010, preparing accounts to $ April. For the year ended 5 Aoril 2023 she mace a trading loss of £45,809, and hes claimed this against her total income and chargeable gain for the tax year 2021/22. For the year ended 5 April 2022 Hong made a trading profit of £29,700. She also has property income of £3,900 for the tax year 2021/22. Hang has an unused trading loss of £2,600 brought forward from the tax year 2020/21, During the tax year 2021/22 Hong disposed of an investment property and this resulted ina chargeable gain (before the annual exempt amount) of £17,800. Hong has unused capital losses of £6,200 brought forward from the tax year 2020/21. Required: After taking account of the loss relief claims made, calculate Hong's taxable income and taxable gain for the tax year 2021/22, and state the amount of any trading loss carried forward. 4 You should throughout, (c} assume that the tax allowances for the tax year 2022/23 apply (5 marks) This scenario relates to one requirement. Kang, Ung and Ming have been in partnership since 2012, preparirg accounts to 30 June. Ming left the partnership on 31 Octoher 2021, Profits have always been shared equally. The partnership had a trading profit of £148,800 for the year ended 30 June 2021, and a profit of £136,806 for the year ended 30 June 2022. Each partner has unused overlap profits brought forwerd of £29,400, Required: Calculate the trading income assessments of Kang, Ling and Ming for each of the tax years 2021/22 and 2022/23. (5 marks) (Total: 15 marks} | ice KAPLAN Calculate your allowed time and allocate the time to each separate part. PUBLISHING 55 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 103 103 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> 118 TAXATION ({F42022) NA STYLE (ADAPTED) re Walk in the footsteps of o top tutor This scenario relates to three requirements. Na Style commenced self-employment as a hairdresser on 1 January 2020. She had tax adjusted trading profits as follows: £ Six months ended 30 June 2020 25,200 Year ended 30 June 2021 Year ended 30 June 2022 27,600 31,315 Other Information 1 During the tax year 2022/23 Na received dividends of £5,200, bullding society interest of £700, interest of £310 fram an individual savings account (ISA), interest of £1,100 on the maturity of a NS&I savings certificate, and interest of £370 from government stacks (gilts) 2 Na’s payments an account of income tax in respect of the tax year 2022/23 totalled £3,200. Required: {a) Calculate the amount of trading profit that will have been assessed on Na Style for the tax years 2019/20 to 2022/23 (inclusive), clearly identifying the ammount of any overlap profits. Bi (6 marks) (b) 1 Calculate the income tax payable by Na Style for the tax year 2022/23. {6 marks) 2 Caleulate Na Style’s balancing payment for the tax year 2022/23 and her payments on account for the tax year 2023/24, stating the relevant due dates, 2 You should ignore national insurance contributions, {3 marks) (Total: 15 marks) 119 ZHI (ADAPTED) ‘et Woik in the footsteps of a top tutor This scenario relates to four requirements. You should assume that today’s date is 15 December 2022. Zhi has been self-employed since 2005, preparing accounts to 31 December. On 1 December 2022, Zhi purchased a new freehold warehouse for £164,000 for use in his business, but this purchase has resulted in Zhi having cash flow problems. He has various tax peyments becoming due over the next two months, and would like to reduce or postpone these payments as much as possible, 56 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 104 104 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 income tax and national Insurance contributions (NICs) Zhi's income tax liabilities and class 4 NICs for the tax years 2020/21 to 2022/23 {inclusive} are, or are forecast to be: 2020/21 202/22 2022/23 £ € £ income tax liability 25,200 27,600 18,000 Class 4 Nics 4,084 4,204 3,724 Zhi has not made any chims to reduce his payments on account, Capital gains tax (CGT) Zhi has 3 CGT liability of £12,860 becoming due for payment on 31 January 2023. This Bin respect of a freehold office building which was sold for £210,000 on 10 December 2021, resulting in a chargeable gain of £76,000. The office building hac always been used for business purposes by Zhi. Zhi is a higher rate taxpayer. No daim has been made for rollover elie, Vabue added tax (VAT) Zhi has forecast that he will have to pay VAT of £20,200 on 7 February 2023 to HM Revenue and Customs (HMRC} In respect of the VAT quarter ended 31 December 2022, On 12 December 2022, Zhi dispatched goods relating to an exceptionally large credit sale of standard-rated goods of £45,600 {inclusive of VAT), He has not yet Issued a sales invoice for this sale. Because the customer is unlikety to pay until 28 February 2023, Zhi is considering not issuing a sales invoice until 1 February 2023. PAYE and NICs Zhi will have to pay PAYE and NICs of £5,554 electronically on 22 January 2023 to HMRCin respectof his two employees for the tax month running from 6 December 2022 to $ January 2023. This includes amounts for bonuses, which Zhi was planning to pay to his two employees on i January 2023, but he could delay payment until 10 January 2023. The bonuses are in respect of the year ended 31 Decamber 2022, and they will be treated as being received on whichever is the date of psyment, The first employee hasa gross annual salary of £20,000 and is to be paid a bonus of £1,500 The second employee has a gross annual salary of £55,000 and & to be paid a bonus of £5,000. Required: {2) Calculate the amount by which Zhi can claim to reduce his self-assessment income tax and NICs due for payment on 31 January 2023 without incurring interest or penalties. (b) (2 marks) Calculate the amount by which Zhi’s CGT liability due for payment on 31 January 2023 will be reduced if he makes a claim for rollover relief based on the warehouse purchased on 1 December 2022 for £164,000, Assure that tax rates and allowances for the tax year 2022/23 apply throughout. KAPLAN PUBLISHING (3 marks) Ss? https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 105 105 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (c} (FA2022) Explain whether Zhi can reduce the amount of VAT payable on 7 February 2023 by not issuing a sales invoice for the credit sale of £45,600 until 1 February 2023, and, if 50, by how much the payment will be reduced, El (qd) (2 marks) Calculate the amount by which Zhi’s PAYE and NiCs due on 22 January 2023 will be reduced if he delays the payment of employee bonuses until 10 January 2023, and state when the postponed amount will be payable. #2 Note: Your calculations should be based on annual income tax and NIC thresholds. (3 marks) (Total: 10 marks) 120 JADE This scenario relates to three requirements, You should assume that today’s date is 15 December 2022. Jade is self-employed and is normally subject to income tax at the higher rate of 40%, However, because of sore exceptionally large one-off comacts, Jace has forecast that her trading profit for the year ended 5 April 2023 will exceed £200,000; meaning she will pay income tax at the additional rate of 45% for the tax year 2022/23. Jade is going to undertake four measures aimed at reducing her Income tax liability and national insurance contributions (NICs) for the tax year 2022/23: Employment of daughter Jade's daughter, Emeraki, has recently returned to the United Kingdom after travelling overseas, She currently has no income for the tax year 2022/23. For the three-month ceriod ended 5 April 2023, Emerald will be employed by Jade’s business at a grass monthly salary of £2,000, This salary is reasonable in relation to the duties that will be performed by Emerald. Capital expenditure Jade was planning to purchase new office equipment for £14,000 on 10 April 2023, but this expenditure will instead be brought forward to. 1 April 2023, This will be her only capital expenditure in the tax year 2022/23. Jade has one key employee who was largely responsible for obtaining the large contracts. This. employee, who has a gross annual salary of £65,000, will be paid a bonus of £10,000 on 1 April 2023. Drawings Jade wes planning to take £100,000 out of the business as drawings during the tax year 2022/23, but will instead take reduced drawings of £80,000. Required: (a) (b) Briefty explain the difference between tax evasion andtax avoidance. Calculate the income tax payable and class 1 NICs suffered by Emerald for the tax year 2022/23. (c} {2 marks} (2 marks) Calculate Jade's overall saving of income tax and class 4 NICs for the tax year 2022/25 if she undertakes the four tax planning measures. Note: You should show by how much each of the four measures will reduce Jade's trading profit and the resulting tax and class 4 NIC saving for Jade. (6 marks} (Total: 10 marks) KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 106 106 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 121 INCOME TAX 4ND RICHARD FEAST (ADAPTED) ra (2) NATIONAL |NSURANCE QUESTIONS : SECTION 1 Wolk in the footsteps of o top tutor This scenario relates to one requirement. On 6 April 2022, Rkhard Feast commenced in self-employment, running a restaurant. Richard's statement of profit or loss for the year ended 5 Apri 2023 Is as follows: Notes £ Gross profit Expenses Car expenses Property expenses Repairs and renewals Other expenses £ 73,A40 1 z 4 4 7,660 16,200 6420 10,960 (41,240) Net profit 32,200 Note 1 — Car expenses £ Cost of running Richard’s car 4,710 Cost of running @ car used by the restaurant's chef 2,670 Parking fines incurred by Richard 230 7,660 Richard's car & used 70% for private journeys, and the chef's car ts used 20% for private journeys. Note 2 - Property expenses Richard Eves in an apartment which i situated above the restaurant, and one-fifth of the total property expenses of £16,200 relate to this apartment. Note 3 — Repairs and renewals Decorating the restaurant Decorating the apartment £ 5,100 3,320 6,420 The property was in 3 usable state when it was purchased. Note 4— Other expenses The figure of £10,950 for other expenses inchides legal fees of £2,590 in connection with the purchase of the restaurant property, which was built in 1983. The remaining expenses are all allowable KAPLAN PUBLISHING 59 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 107 107 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) Additional Information: Plant and machinery The following cars were purchased during the year ended S April 2023: Date of purchase Cost CO, emission rate £ Car 1 6 Apwil 2022 14,000 3942 grams per Kilometre Car 2 6 April 2022 16,800 37 grams per kilometre Car 1 is used by Richard, and car 2 Is used by the restaurant's chef. Required: Calculate Richard Feast’s tax adjusted trading profit for the year ended 5 April 2023. & Notes: i = Your computation should commence with the net profit figure of £32,200, and should list all of the items referred to in Notes 1 to 4, indicating by the use of zero (0) any Rems which do not require adjustment. 2 (b) In answering this part of the question you are not expected to take account of any of the Information provided In parts (b) or (c] below. {7 marks) This scenarto relates to one requirement, Richard's only employee is a chef who is employed throughout the tax year 2022/23 on &@ gross annual salary of £46,000. The chef was provided with a hybrid-electric car (see the plant and machinery information in pert (a) above) throughout the tax year. The list price of the car is the same as its cost and the electric range was 25 miles, Richard did not provide any tuel tor private journeys. Required: Calculate the employer's class 1 and class 1A national insurance contributions which Richard Feast would have Incurred In respect of the chef’s earnings and benefit for the tax year 2022/23. You are not expected to calculate the national Insurance contributions suffered by the employee or by Richard in respect of hi self-employment. @ marks) {c) Thisscenarlo relates to two requirements. Richard has not previously filed a self-assessment tax return, and therefore wants to know when he will have to file his return for the tax year 2022/23. He Is not sure whether to file a. paper tax return or to file the retum onfine. As this will be his first self-assessment tax return, Richard is concerned that HM Revenue and Customs might carry out 2 compliance check. Required: 1 Advise Richard Feast of the latest dates by which his self-assessment tax return for the tax year 2022/23 should be filed in ordex to avoid a penalty. u (2 marks) 60 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 108 108 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 2 INCOME TAX 4ND NATIONAL INSURANCE QUESTIONS : SECTION 1 State the period during which HM Revenue and Customs will have to notify Richard Feast if they intend to carry out a compliance check in respect of his self-assessment tax return for the tax year 2022/23, and the possible reasons why such a chock would be made. =I You should assurne that Richard will file his tax return by the filing date. (3 marks) (Total: 15 marks} 122 ALFRED AND AMAIA ree] Wolk in the footsteps of a top tutor This scenario relates to two requirements Alfred and Amaia are a married couple. Alfred Alfred cormmenced trading as a sole trader on 1 Septernber 2022. He prepared his first set of accounts for the seven-month period ended 31 March 2023, and his draft tax adjusted trading profit before capital allowances was £63,000, The dratt tax adjusted trading profit is before adjusting for any deductions arising fram the following: i £5,000 Incurred during January and February 2022 on a marketing campaign for his business. 2 A premium of £30,000 paid on 1 September 2022 to acquire @ ten-year lease on a workshop used for tradc purposes. 3 Cost of a golf day on 31 March 2023 for a group of Alfred's largest clients totalling £1,000. Expenditure of £116,000 on 1 Septernber 2022 for plant and equipment. The purchase of a car on 15 December 2022 for £24,000, The car has a COs emissions rate of 44 grams per kilometre, and Is used by Alfred’s employee. Amaia Amaa is omployed by Argole Ltd and her remuncration package compnses: i A gross annual salary of £80,000. 2 From 1 January 2023, Argole Ltd provided Amaia with a petrol company car, The car had a list price of £25,000, although Argole Ltd received a discount and only paid £23,500. The car has a CO; emissions rate of 52 grams per klometre. Argole Ltd did not provide any fuel for Arnaia’s private use. 3 Since 6 April 2020 Argole Lid has provided Amaia with living accommodation which qualifies as job-related accommodation, The annual value of the property Is £23,000 and Argole Ltd pays rent of £2,500 per month. Argole Ltd deducted income tax under PAYE of £29,432 from Amaia’s salary during the tax year 2022/23, Since 6 Apeil 2020 Amaia has let out her own house unfurnished at 2 rent of £1,200 per month, Amaia received 13 months’ rent during the tax year 2022/25. Amaia hasa mortgage which she tock out to acquire the house, and in the tax year 2022/23 she made mortgage payments of £6,000, including interest of £2,600 KAPLAN PUBLISHING 61 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 109 109 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) On 1 December 2021, Amatla paid an insurance premium of £800 for the house in respect of the year ended 31 December 2022. Then on 1 December 2022, she paid an insurance premium of £1,250 for the year ended 31 December 2023. Required: (a) Calculate Alfred's revised tax adjusted trading profit or loss for the seven-month period ended 31 March 2023. Notes: a Your computation should commence with the droft tax adjusted trading profit of £63,000 and fist all of the items referred to in notes 1 to 5, indicating with the use of zero (0) any items which do not require adjustment. 2 You should assume Alfred claims the maximum amount of capital allowances. (6 marks) (b) Calculate the income tax payable by Amaia for the tax year 2022/23. Note: Your computation should Sst all of the items referred to In the Indicating with the use of zero (0) any Items which are not taxable, scenano, (9 marks) (Total: 15 marks} TRADING LOSSES 123. NORMA (ADAPTED) This scenario relates to two requirements. Norma, who had been in business as a confectioner since 1 May 2018, disposed of the business and retired on 31 May 2022, She does not intend to start any other business, but will be employed part time from 1 June 2022 on an annual salary of £11,400. Her trading profits/{losses), as adjusted for taxation were: Period ended 31 December 2018 £ 21,000 ~—s— Profit Year ended 3] December 2019 27,000 = Profit Year ended 33 December 2020 Year ended 331 December 2021 Period ended 31 May 2022 16,900 = Profit 9.835 Profit (12,000) Loss Norma has received bank interest of £3,250 each year since April 2018, In addition, she realised a taxable gain (Le. after the annual exempt amount), of £38,000 in June 2021. The taxable gain does not qualify for business asset disposal relief end it is nut in relation to residential property. Required: (a) Calculate Norma’s taxable income and gains for each tax year that she was in business before any relief for the loss arising In the period ended 31 May 2022, #4 (b) Explain the options available to Norma to utilise the foss and explain the effect on her tax Habllity of the loss relief claims identified. fal Assume that the tax rules, rates and allowances for the tax year 2022/23 apply throughout. (Total: 15 marks) 62 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 110 110 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 124 INCOME TAX 4ND NATIONAL INSURANCE QUESTIONS : SECTION 1 ASHURA (ADAPTED) ref] Walk fn the footsteps of a top tutor This scenario relates to four requirements, Ashura has been employed by Rift ple since 1 January 2019. She has alse been self-ernployed since 1 july 2022, preparing her first accounts for the nine-month period ended 5 April 2023. The following information /s available for the tex year 2022/23: Employment i During the tax year 2022/23, Ashura was paid a gross arinual salary of £56,200, from which she paid 5% inta Rift plc's occupational pension scherne. 2 On 1 January 2023, Ashura personally paid two subscriptions. The first was a professional subscription of £320 paid to an HM Revenue and Customs’ (HMRC's} approved professional body. The second was a subscription of £639 to a health club which Ashura regularly uses to meet Rift pk’s clients. Ashura was not reimbursed for the costs of either of these subscriptions by Rift pic. 3 During the tax year 2022/23, Ashura contributed £3,400 |gross} into a personal pension scheme, Self-employment i Ashura’s tax adjusted trading profit based on her draft accounts for the nine-month period ended 5 April 2023 is £10,930. However, this figure is before making any adjustments required for the cost of Ashura’s office (note 2) or capital allowances {note 3} and she suspects ste will actually have an allowable loss for tax purposes. 2 Ashura runs her business from a newly built office [construction began on 2 Novernber 20273 and was completed in June 2022 shortly before Astura commenced trading}. Na deduction has been made for te £110,000 cost of the office in calculating the profit of £10,930. The cost of £110,000 was made up as Follows: £ Building Heating system 97.600 5,100 Véater system 4,200 Decoration 3,100 110,006 3 KAPLAN On 10 June 2022, Ashura purchased a laptop computer for use in ner trade for £2,600, On i July 2022, Ashura purchased 2 car for £19,200. The car has a COz emission rate of 87 grams per kilometre. During the nine-month period ended S April 2023, Ashura drove a total of 8,000 miles, of which 2,400 were for self-employed business journeys PUBLISHING 63 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…ed-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...ed-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 111 111 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION (FA2022) Other Information Ashura’s total income for the previous four tax years & as follows: Tax year Total income 2018/19 10,700 £ 2019/20 10,400 2020/21 48,800 2021/22 54,300 Required: (a) State TWO advantages for Ashura of choosing 5 April as her accounting date rather than a date early in the tax year such as 30 April. fl (2 marks) (b) Calculate Ashure’s tax adjusted trading loss for the nine-month period ended S April 2023. B (6 marks) (c)} Explain why it would not be beneficial for Ashura to claim loss rellef under the provisions giving relief toa loss incurred in the early years of trade, a Note: You should assure that the tax rates and allowances for the tax year 2022/23 also apolied in all previous tax years. (2 marks) (d) Assuming that Ashura claims loss relicf against her total income for the tax year 2022/23, calculate her taxable income for this tax year. {5 marks) (Total: 15 marks) 125 DEE ZYNE (ADAPTED) we Walk in the footsteps of a top tutor This scenario relates to two requirements. On 5 July 2022 Bee Zyne resigned es an employce of Trendy-Wear pk. The company had employed ber as a fashion designer since 2012. On 6 July 2022 Dee commenced selfemployment running her own clothing business, preparing accounts to 5 April. The following information is available for the tax year 2022/23: Self-employment 1 Dee's tax adjusted tracing loss for the period 6 July 2022 to 5 April 2923 was £11,653, This figure is before taking account of the informationin Note 2 and capital allowances. 64 ? During the period 6 July 202? to S April 7023 Dee paid patent royalties of £500 in respect of specialised technology that she uses in her clothing business. 3 Dee purchased the following assets during the period ended 5 Acril 2023: 10 July 2022 Computer £ 1,257 16 August 2022 Office furniture 2,175 13 November 2022 Cori 10,400 21 January 2023 Car 2 17,500 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 112 112 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 Car . purchased on 13 November 2022 has CO, emissions of 45 grams per kilometre, is used by an employes, and 15% of the mileage is for private purposes Car 2 purchased on 21 January 2023 has CO) emissions of 95 grams per kilometre, is usec by Dee, and 20% of the mileage Is for private purposes. Other information 1 Dee‘s employment income for the period 6 April 2022 to 5 July 2022 was £32,875. 2 Dee's total income for each of the tax years 2016/17 to 2021/22 was £80,000. Required: {a} Calculate Dee’s tax adjusted trading loss for the tax year 2022/23. 4 (6 marks) (b) Describe the ways in which Dee could have relieved her trading loss for the tax year 2022/23 against total income, and explain which of these claims would have been most beneficial, & You should assume that the tax rates for the tax year 2022/23 apply throughout. (4 marks) (Total: 10 marks) 126 SAMANTHA FABRIQUE (ADAPTED) @ Walk in the footsteps of a top tutor This scenario relates to two requirements. Samantha Fabrique has been a self-employed manufacturer of clothing since 2011. She has the following income and chargeable gains for the tax years 2021/22 to 2023/24: 2021/22 2022/23 2023/24 (estimated] Trading profit/{lass) E 21,600 £ (81,900) £ 116% Building society interest Chargeable gains/(loss) 52,100 53,600 3,800 (3,400) 1850 12,503 The chargeable gains co not qualify for business asset disposal relief and are not in relation to residential property, Required: (a) State the factors that will influence an individual's choice of loss relict claims. (3 marks) {b) Calculate Samantha’s taxable income and taxable gains for each of the tax years 7021/22 to 2023/24 (inclusive) on the assumption that she relieves the trading loss of £81,900 for the tax year 2022/23 on the most favourable basis. Explain your reasoning behind relieving the loss on the most favourable basis. Ll You should throughout. assume that the tex allowances for the tax year 2022/23 apply (12 marks) (Total: 15 marks} KAPLAN PUBLISHING 65 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 113 113 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 127 MICHAEL AND SEAN fe Wek in the footsteps ofo top tutor This scenario retates to three requirements, The UK Government uses tax policies to encourage certain types of activity. Required: Briefly exptain how the UK Government's tax policies encourage: a 1 individuals to save, {1 mark) 2 individuals to support charities, (1 mark) 3 Entrepreneurs to build ther own businesses and to invest in plant and machinery. (2 marks) (b) This scenario relates to one requirement. You are a trainee chartered certified accountant and your manager has asked for your help regarding two taxpayers who have both made trading losses. Michoel Michse! commenced in self-employment on 1 July 2021, preparing accounts to S April, His results for the first two periods of trading were as follows: £ Nine-rnonth period ended 5 April 2022 Year ended 5 April 2023 — Trading loss ~ Trading profit (24,600) 7,100 For tax years 2017/18 to 2019/20, Michsel had the following employment income: £ 44,500 17,200 $1,000 2017/18 2018/19 2039/20 Michae! did not have any income curing the period 6 Apri 2020 to 30 June 202L Sean Sean hes been in self-employment since 2012, but ceased trading on 31 December 2022. He has always prepared accounts to 31 December. His results for the final five years of trading were as follows: £ Year ended 31 December 2018 — Trading profit 21,300 Year ended 31 December 2019 = [rading profit 14400 Year ended 31 December 2020 — Trading profit 18,900 Year ended 31 December 2021 ~ Trading profit Year ended 31 December 2022 — Trading loss 3,700 (23,100) For wach of the tax years 2018/29 Co 2022/23 (inclusive) Sean has property business profits of £12,570, Sean has unused overlap profits brought forward of £3,600. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 114 114 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX 4ND NATIONAL INSURANCE QUESTIONS : SECTION 1 Required: For each of the two taxpayers Michacl and Sean, identity the loss reef claims that are available to them, and explain which of the available claims would be the most beneficial. Sl Notes: 1 You should clearly state the amount of any reliefs claimed and the rates of income tax saved. However, you are not expected to calculate any Income tax liabilities. 2 You should assume that the tax rates and allowances for the tax year 2022/23 apply throughout. The following mark allocation is provided as guidance for this requirement: Michael (5 marks) Sean (6 marks) (Total: 15 marks) PARTNERSHIPS 128 SAM, TAM AND UMA & Walk in the footsteps of a top tutor This scenario relates to two requirements. Sam and Tam have been in partnership since 1 July 2008 preparing accounts to 30 June. Tam retired as a partner on 31 October 2022, with Uma replacing her as a partner on 1 November 2022. Sam has always received an 80% share of the partnership's profits, with Tam, and then Uma, receling a 20% share. The partnership’s recent trading profits are as follows: Year ended 30 June 2022 £ 137,500 Year ended 30 June 2023 132,000 Sam and Tam respectively, have unused overlap profits brought forward cf £31,200 and £7,800 sam For the tax year 2022/23, Sam does not have any other income apart from her 80% share of the partnership's profits. Tam In addition to her 20% share of the partnership's profits, for the tax year 2022/23 Tam was employed by XZQ ple between 6 April and 31 October 2022 and recewed pension income between 1 November 2022 and 5 April 2023. The following information is available for the tax year 2022/23: 1 From 6 April to 31 October 2022, Tam received a monthly gross salary of £3,400 from Opie KAPLAN PUBLISHING 67 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 115 115 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) 2 During the period6 April to 31. October 2022, Tam contributed 5% of her monthly gross salary into XZQ pic's occupational pension scheme. X20 pic contributed a further 10% on her behalf. 3 During the pertod 6 April to 31 October 2022, XZQ pic provided Tam with a diesel car which had a list price of £36,600 and an official CO, emission rate of 58 grams per k#ometre, The car met the real driving emissions 2 (RDE2} standerd, Tem wes not provided with any fuel for private journeys. 4 s ZQple provided Tarn with an interest-free loan to purchasea motorbike, The balance of the loan outstanding at 6 April 2022 was £6,400, and Tam repaid the loan in full on 31 October 2022. During the period 2 November 2022 to S April 2023, Tam received the state pension of £3,650 and a pension of £11,300 from XZ, ple’s occupational pension scheme. These were the total gross amounts received, Uma in addition to her 20% share of the partnership's profits, Uma was employed by ABCD pic throughout the tax year 2022/23 as a marketing director. The following information is available for the tax year 2022/23: 1 Ume was paid gross ansual cirector’s remuneration of £180,000 by ABCD pic, 2 During the tac year 2022/23, Uma paid interest of £2,100 {gross} on a personal loan taken out to purchase her share In the partnership, 3 During the tax year 2022/23, Uma received dividend income of £2,400, Required: (a) Calculate the trading income assessments of Sam, Tam and Uma for the tax year 2022/23. (bt) (5 marks) Calculate the taxable income of Sam, Tam and Uma for the tax year 2022/23. Hi {10 marks) Note: You should indicate by the use of zero (0) any Items which are not taxable or deductible. (Total: 15 marks) KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 116 116 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 129 AMANDA This scenario relates to four requirements. Amanda's taxable income for the tax year 2022/23 is: E Employment income Property income 58,200 2,000 60,200 Deductions for boss relief and qualifying Interest payments Personal allowance Taxable income (3,200) 57,000 (12,570) 44,430 Living accommodation For the petiod 1 November 2022 to 5 April 2023, Amanda's employer provided her with living accommodation. Her employer had purchased the property on 10 February 2020 for £174,000, and it was valued st £192,000 on 6 April 2022 and at £194,000 on 1 November 2022. improvements costing £8,000 were made to the property during May 2021. The annual value of the property is £6,300. The property was furnished by Amanda's employer during August 2022 st a cost of £12,400, The taxable benefit in respect of the living accommodation is included in the employment income figure oF E58,200. Partnership loss Amanda has been in portnership with Benny and Cotton since 1 January 2009, for the ycor ended 31 December 2022, the partnership made 3 tax-adjusted trading loss of £10,800. Until 28 February 2022, profits and losses were shared equally. Since 1 March 2022, profits and losses have been: Shared 15% to Amends, 60% to Benny and 25% to Cotton. Amanda has daimed her share of the partnership's loss against her total income for the tax year 2022/23, and this is induded in the deductions for loss relief and interest payments figure of £3,200. Gift aid donations During the tax year 2022/23, Amanda made charitable gift aid donations totalling £640 (net). PAYE For each of the twelve months of the tax year 2022/23, Amanda's employer deducted £900 of Income tax from Amanda’s monthly earings under PAYE. Child benefit Amanda received child benefit of £2,636 during the tax year 2022/23. Amanda's husband For the tax year 2022/23, Amanda’s husband had8 taxable income of £21,000. KAPLAN PUBLISHING 69 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 117 117 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION ({F42022) Required: (a) Calculate Amanda’s taxable benctit for the tax year 2022/23 in respect of the living accommocation provided by her employer. (5 marks) (b) Calculate Amanda's partnership loss relief daim for the tax year 2022/23. (2 marks) (c) Calculate the income tax and child benefit income tax charge payable repayable to, Amanda for the tax year 2022/23. (cq) by, or (5 marks) Calculate the overall income tax saving and reduction in child benefit Income tax charge for the tax year 2022/23 if the property income of £2,000 had been received by Amanda's husband rather than by Amanda, {3 marks) (Total: L5 marks) 130 AUY MAN AND BIM MEN (ADAPTED)ro 8] Walk in the footsteps of a top tutor This scenario relates to three requirements. Auy Man and Bim Men have been in partnership since 5 April 2012 as management consultants. The following information ts available for the tax year 2022/23: Personal information Auy spent 190 days in the United Kingdom (UK) during the tax year 2022/23, Auy was resident inthe UK ouring the tax year 2021/22. Bim spent 100 days in the UK during the tax year 2022/23 livingin her holiday home in Devan. Bim also spent 100 days in the UK in each of the previous five tax years, and was treated as resident in the UK during each of the previous three years. Staternent of profit or loss for the year ended 5 April 2023 The partnership's summarised statement of profit or joss for the year ended 5 April 2023 ts: Notes £ Sales £ 143,880 Expenses: Depreciation 3,400 Other expenses 1 1,490 Wages and salaries 2 50,930 —_— Net profit (56,100) 87,780 Notes: 70 1 The figure of £1,300 for other expenses includes £720 for entertaining employees. The remaining expenses are al allowable, 2 The figure of £50,900 for wages and salaries includes the annual salary of £4,000 paid to Bim (see Uhe profit sharing note below). KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 118 118 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 Piant and machinery On 6 April 2022 the tax written down values of the partnership's plant and machinery were: £ 3,100 Main pool Cari 21,000 The following transactions took place during the year ended 5 April 2023: Cost & May 2022 Purchased car 2 £ 10,150 21 November 2022 14 January 2023 Purchased car 3 Purchased car4 14,200 11600 Car 3 was purchased in March 2020 and hasa CO. emission rate of 125 grams per kilometre. Inis used by Auy, and 80% of the mileage it for business journeys. Car.2 was @ hew car purchased on 8 May 2022 and has zero. CO, emissions. It & used by Bin, and 80% of the mileage is for business journeys. Car 3 purchased on 21 November 2022 has 2 CO; emission rate of 40 grams per kilometre. Car4 purchased on 14 January 2023 has a CO; emission rate of 90 grams per kilometre. These two Cars are used by employees of the business. Profit sharing Profits are shared 80% to Auy and 20% to Bim. This is after paying an ennual salary of £4,000 to Bim, and interest at the rate of 5% on the partners’ capital account balances. The capital account baiances are: £ Auy Man 56,000 Bim Men 34,000 Required: {2} Explain why both Auy Man and Bim Men will each be treated for tax purposes as resident in the United Kingdom for the tax year 2022/23. fl (2 marks} {b) Calculate the partnership’s tax sdjusted trading profit for the year ended 5 April 2023, and the trading incamea assessments of Auy Man and Bim Men for the tax year 2022/23. Your computation should commence with the net profit figure of £87,780, and should also list all of the tems referred to in Notes 1 and 2 indicating by the use of zero (0) any items that de not require adjustment. {ec} {10 marks} Calculate the class 4 national insurance contributions payable by Auy Man and Bim Men for the tax year 2022/23. Hi (3 marks) {Total: 15 marks} KAPLAN PUBLISHING 71 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 119 119 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> 131 TAXATION (FA2022) DANIEL, FRANCINE AND GREGOR & Walk in the footsteps ofo top tutor This scenario retates to one requirement, Amanda, Seatrice and Claude have been in partnership since 1 November 2016, preparing accounts to 31 October annually. Daniel jo®ved as a partner on 1 May 2022. Profits have always been shared equally. The partnership's recent tax adjusted trading profits are as follows: Year ended 31 October 2021 E 147,009 Year ended 31 October 2022 Year ended 31 Getaber 2023 (forecast) $6,009 180,009 Required: Calculate Daniels trading income assessment for the tax year 2022/23. 2A (3 marks) (b) This scenario retates to one requirement. Francine is employed by Fringe pic. On 1 August 2022, Fringe pic provided Francine with a loan of £96,000 to help her purchase a holiday cottage. On 1 October 2022, the loan wes increased by 2 further £14,000 so that Francine could renovate the cottage. Francine pays interest at an annual rate of 1.5% on this loan. The taxable benefit in respect of this loan is calculated using the average method. Required: Calculate Francine’s taxable benefit for the tax year 2022/23 in respect of the loan from Fringe plc. (3 marks) {¢) This scenario relates to one requirement. Gregor hat been self-employed since 6 April 2008. He has the following income and chargeable gains for the tax years 2021/22 and 2022/23: 2021/22 Trading profit/(loss) 2022/23 £ £ 14,700 (63,600) Property income/{lnes) 4,600 (2,300) Building society interest Chargeable gain/(loss) 1,300 (2,900) S00 17,400 Required: On she assumption that Gregor reeves his trading possible, calculate the amount 2023/24. loss of £68,800 of trading loss carried forward as carly as to the tax year Note: You should assume that the tax allowances for the tax year 2022/23 apply throughout, (4 marks) (Total: 10 marks) 72 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 120 120 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 PENSIONS AND NIC 132 JOHN BEACH (ADAPTED) fot Walk in the footsteps of a top tutor This scenario relates to two requirements, The folowing information is available in respect of John Beach for the tax year 2022/23: i John has been employed by Surf ple as a sales director since 1 December 2000, During the tax year 2022/23, he was paid gross director's remuneration of £234,000. During the tax year 2022/23, John contributed £28,000 into Surf pic’s occupational pension scheme. The company conteibuted a further £11,000 on his behalf. During the period 6 April to 31 October 2022, John used nis private car for both private and business journeys. He was reimbursed by Surf pk at the rate of 60p por mée for the following mileage: Miles Norma! daily travel between home and Surf plc's offxes 1,280 Travel between Surf pic's offices and the premises of Surf pic's clients 4,270 Travel between home and the premises of Surf pic’s clients (none of the clients’ premises were located near the offices of Surf plc} 510 Total mileage rewnbursed by Surf pic S960 During 2019 Surf pie provided John with a loan which was used to purchase a yacht. The ammount of loan outstanding at 6 April 2022 was £84,000, John repaid £12,000 of the loan on 31 July 2022, and then repaid a further £12,000 on 31 December 2022, He paid loan interest of £910 to Surf ple during the tax year 2022/23. The taxable benefit in respect of this loan is calculated using the average method. Surf ple gave John an engraved gold watch costing £465 on 1 December 2022 in recognition of his long service with the company. During the tax year 2022/23, John made personal pension contributions up to the maximum amount of available annual allowances, including any unused amounts brought forward from previous years (see Note 7), These personal pension contributions were in addition to the contributions he made to Surf plc's occupational pension scheme (see Note 2]. John had an unused annual allowance of £1,000 In the tax year 2021/22 and each of the previous four tax years. Required: (2) (b) Calculate John Beach's income tax liability for the tax year 2022/23, FAH (12 marks) Calculate the class 1 national insurance contributions that will have been suffered by John Beach and Surf pic in respect of John’s earnings and benefits for the tax year 2022/23, Hi (3 marks) (Total: 15 marks) KAPLAN PUBLISHING 73 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 121 121 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> 133 TAXATION ({F42022) ANN, BASIL AND CHLOE (ADAPTED) e Walk in the footsteps of a top tutor This scenario relates to three requirements. You re 8 trainee accountant and your manager has asked for your help regarding three taxpayers who have all made personal pension contributions during the tax year 2022/23. Ann Peach Ann is self-employed as an estate agent. Her treding profit for the year ended 5 Apri 2023 was £38,650. Ann received an inheritance from her aunt in October 2022 ard used it to make a contribution of £42,000 (gross) into a personal pension scheme in November 2027. Basil is employed by the Banana Bank pic as a fund manager. On 6 April 2022 Basil received a significant promotion and a large pay rise of £140,000, such that in the tax year 2022/23 he was paid a gross salary of £242,000, Basil made contributions intoa personal pension plan totalling £30,000 (gross| during the tax year 2019/20 and £40,000 (gross) during the tax years 2020/21 and 2021/22. During the tax year 2022/23 he also made total gross contributions of £40,000, He is not a member of Banens Bank ole’s occupational pension scheme but the back contributed £5,000 to Banil’s personal pansion in the tax year 2022/23, Chioe Pear Chloe Pear lets out unfurnished property. For the tax year 2022/23 her taxable property income was £24,550. Chise made contributions of £8,200 (gross) into a personal pension scheme during the tax year 2022/23. Neither Ann nor Basil nor Choe has any other income, Required: (a) For each of the three taxpayers Ann Peach, Basil Plum and Chioe Pear, state, giving reasons, the amount of personal pension contributions that will have qualified for tax relief for the tax year 2022/23, and calculate their income tax liabilities for that year, Marks are allocated as follows: Ann Peach 2 marks; Basil Plum 6 marks; and Chloe Pear 2 marks. (b) {10 marks) Briefly explain: 1 The tax implications for both Basil and the Banana Bank pic of the bank making contributions into Basil's personal pension scheme, and 2 (3 marks) The implications for Basil's available annual allowance in 2022/23 of Banana Bank pic contributing £100,000 instead of £5,000 into Basil’s personal pension in the tax year 2022/23, fal (2 marks) (Total: 15 marks) 74 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 122 122 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INCOME TAX 4ND NATIONAL INSURANCE QUESTIONS : SECTION 1 134 JACK (ADAPTED) fe} Wolk in the footsteps of a top tutor This scenario relates to four requirements, You should assume that today’s date is 15 March 2023 and that the tax rates and allowances for the tax year 2022/23 continue to apply. Jack, aged 44, is a widower following the recent death of his wife. He has just cashed in a substantial share portfolic and bs now considering what to do with the proceeds, Gift to a trust The value of tack’s estate is in excess of £1,000,000, and he is worried about the amount of inheritance tax which will be payable should he die. His wife's nil rate band was fully used when she died. Jack is therefore planning to make an immediate lifetime cash gift of £300,000 to a trust with the funds then being heki for the benefit of his two children aged 10 and 12. Jack has not made any previous lifetime gifts. Personal pension contribution The only pension contributions which Jack has made previously are a gross amount of E500 per month which he saves into a personal pension scheme. Jack has continued to make these contributions throughout the tax year 2022/23, Although Jack has been saving into this scheme for the previous 15 years, he is concerned that he is not saving enough for his retirement. Jack therefore wants to make the maximum possible ammount of additional gross personal pension contribution for the tax year 2022/23, but only to the extent that the contribution will attract tax relief at the higher rate of income tax. Jack is self-employed. His trading prof® is £100,000 for the tax year 2022/23 and the previous five tax years. He does not have any other income and expects to maxe the same level of profit in future years. individual savings account (1SA) Jack has never invested any amounts In ISAs. During the next 30 days he would like to Invast the maximum possible amounts into stocks and shares ISAs, Required: {2} Explain, with supporting calculations where necessary, why It is good Inheritance tax planning for tack to make the Immediate lifetime cash gift of £300,000 to a trust. Sl Note: You are not expected to consider taper relief. {b} (3 marks) {i} Advise Jack of the amount of additional gross persanal pension contribution he can make for the tax year 2022/23 which will benefit from tax relief at the higher rate of income tax, and explain why this is a tax effident approach to pension saving. kl (4 marks) {ii) Calculate the amount of unused pension annual allowances which Jack will be able to carry forward to the tax year 2023/24 if the contribution in (i) above is made, {ce} (2 mark) Advise Jack as to the maximum possible amount which he can invest into stocks and shares tSAs during the next 30 days, Q (2 marks) {Total: 10 marks) KAPLAN PUBLISHING 75 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 123 123 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAKATION (FA2022) SELF-ASSESSMENT 135 PICASSO (ADAPTED) (a) This scenario relates to three requirernents. Pi Casso has beena selfemployed artist since 2011, preparing her accounts to 39 June. Pi's tax liabilities for the tax years 2020/21 to 2022/23 (inclusive) are as follows: 2020/28 2021/22 2022/23 £ 3,240 é£ 4,100 £ 2,730 Class 2 national insurance contributions 159 159 164 Class 4 national insurance contributions 1.240 1,480 950 0 4,880 0 Income tax Hability Capitel gains tax liability Required: i Prepare a schedule showing the payments on account and balancing payments that P/] will have made or will have to make during the period from 1 July 2022 to 31 March 2024, assuming that Pi makes any appropriate Claims to reduce her payments on account. & Your answer should clearly identify the relevant due date of each payment, (7 marks) State the implications if Pi had made a claim to reduce her payments on account for the tax year 2022/73 to #NiL. fel {2 marks) State the latest date by which P| must make a claim to reduce her payments on account for the tax year 2022/23. fel (i mark) Assume that the tax rules for the tax year 2022/23 apply to all tax years. (b) This scenario relates te one requirement, Turner is married to Andrea. In the tax year 2022/23 Turner had trading income of £250,000 and Interest Income of £5,000. Andrea had employment income of £20,000 and dividend income of £23,000. Required: Explain, with supporting calculations, the maximum joint tex saving that Turner and Andree could have made in the tax yeer 2022/23 by trensferring investments between them. BF (5 marks} (Total: 15 marks) 76 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 124 124 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 136 INCOME TAX AND NATIONAL INSURANCE QUESTIONS : SECTION 1 ERNEST VADER (ADAPTED) re 8 Wolk in the footsteps ofa top tutor This scenario relates to four requirements, You should assume that today’s date is 30 June 2024, You area trainee Chartered Certified Accountant and are dealing with the tax effairs of Ernest Vader. Ernest's self-assessment tax return for the tax year 2022/23 was submitted to HM Revenue & Customs (HMAC) on 15 May 2023, and Ernest paid the resulting income tax liability by the due date of 31 January 2024. However, you have just discovered that durirg the tax year 2022/23 Ernest disposed of some shares, the details of which were omitted from his selfassessment tax return. The capital gains tax liability in respect of this disposal is £18,000, and this amount has not been paid. Ernest has suggested that since HMRC's right to initiate a compliance check into his selfassessment tax return far the tax year 2022/23 expired on 15 May 2024, no disclosure should be made to HMRC of the capital gain. Required: {e) Briefly explain the difference between tax evasion and tax avoidance, as well es the general anti-abuse rule and how HMAC would view the situation if Ernest Vader does not disclose his capital gain. (b) (4 marks) Briefly explain from an ethical viewpoint how you, as a trainee Chartered Certified Accountant, should deal with the suggestion from Emest Vader that no disclosure is made to HMRC of his capital gain, Sd (cl) ‘Explain the penalties which your firm, as tax agents, could be liable to, if a compliance check is commenced by HMRC and the firm fails to supply the information requested by HMIRC. [el {cd} (2 marks) State the period for which late payment interest will run assuming that HMRC discover the capita! gain and raise an assessment on 15 July 2024 in respect of Ernest Vader's capital gains tax liability of £18,000 for the tax year 2022/23, and that this amount is then paid on 31 July 2024, & KAPLAN (3 marks) PUBLISHING (1 mark) (Total: 10 marks) 7 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 125 125 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (F42022) 137 SOPHIE SHAPE (ADAPTED) ra 2] Walk in the footsteps ofa top tutor ‘This scenario relotes to four requirements, Sophie Shape has been a self-employed sculptor since 2003, preparing her accounts to 5 Apel. Sophie's tax liabilities for the tax years 2021/22 and 2022/23 are as follows: Income tax liability Qiass2 national insurance contributions Ciass4 national insurance contributions Capital gains tax liability 2021/22 £ 5,249 2022/23 £ 6,100 159 1,320 0 164 1,810 $277 Required: (a) = Prepare a schedule showing the payments on account and balancing payment which Sophie Shape will have made, or will have to make, during the period from 1 April 2023 to 31 March 2024. i Your arswer should clearly identify the relevant due date of each payment. {4 marks) (b) State the implications if Sophie Shape had made a claim to reduce her payments on account for the tax year 2022/23 to nil without any justificstion for doing so. & (2 marks) (c) Advise Sophie Shape of the latest date by which she can file a paper self-assessment tax return for the tax year 2022/23. & (ca) (1 mark) State the period during which HM Revenue and Customs (HMRC) will have to notify Sophie Shape if they intend to carry out a compliance check in respect of her self. assessment tax return for the tax year 2022/23, and the possible reasons why such a check would be made. El You should assume that Sophie will file her tax return by the filing date. (3 marks) {Total: 10 marks) 78 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 126 126 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 Section 2 PRACTICE CHARGEABLE GAINS QUESTIONS PRACTICE SECTION A OBJECTIVE TEST QUESTIONS INDIVIDUALS — CAPITAL GAINS TAX 138 Massita is planning to dispose of several assets and wants to avoid any capital gains tax liability. He is unsure which of his assets to sell and which to retain. Which TWO of the following assets would potentially realisea chargeable gain? —n mon & A 139 Qualifying comporate bonds Painting by a famous artist Gilt-edged securities Main residence that he has always lived In A car used in his trade, on which he has claimed capital allowances and which would be sold for £15,000 and realise a profit & machine used in his trade; on which he has claimed capital allowances and which would be sold for £22,000 and realisea profit March 2029 OT question Which of the following gifts made by an Individual |s exempt from capital gains tan? A 8 Gift of 2 motor beat valued at £10,000 (cost £5,000) to his aunt Gift of unquoted shares in a United Kingdom company valued at £2,500 {cost £1,800) to his brother c Gift of antique jewellery valued at £6,800 {cost £3,200) to his sister Gift of 2 sculpture valued at £3,000 (cost £10,000) to his nephaw KAPLAN PUBLISHING 75 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 127 127 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION 140 (FA2022) Lexile sold a residential property, which she had never lived In, for £338,500 In the tax year 2022/23. She had acquired the building for £150,000 in 2012. Lexie has taxable income of £54,000 for the tax year 2022/23. She sald no other assets in the tax year. What is Lexie’s total capital gains tax liability? A = £35,240 B £89,336 C = £52,786 D £31,716 Jackson acquireda holiday villa for £115,000 on 1 May 2012. Ke gave it to his wife Sophia on 30 September 2017 when it was worth £100,000. Sophia sold the villa for £165,300 on 1 July 2022, The ville was never the couple's main home: Sophia had no other capital disposals in the tax year 2022/23 and has capital losses brought forward of £4,300, Her taxable income for the tax year 2022/23 is £60,000. What Is Sophia's capital gains tax payable in the tax year 2022/23? 142 September 2016 OT question Putting an asset into joint names with s spouse [ora partner ina registered civil partnership) Prior to the asset's disposal can be sensible capital gains tax (CGT) planning, Which of the following CANNOT be achieved as a direct result of using this type of tax planning? A Making the best use of annual exempt amounts 6 Deferning the CGT due date Cc Reducing the amount of OGT payable DO = Making the best use of capital losses September/December 2020 OT question Which TWO of the following statements about allowable capital losses for an individual are true? A The annual exempt amount is deducted before any brought forward capital losses are utilised against current year gains 8 Current ywar capital losses remaining after offset against current year chargeable gains can ahways be offset against current year income Cc The annual exempt amount is deducted before any current year capital losses are utilised against current year gains D 80 Excess current yeer capital chargeable gains arise losses are carried forward indefinitely unt® future KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 128 128 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 Noah sold two paintings at an auction on 14 May 2022 For £4,000 and £7,200 respectively, He had purchased the two paintings for £1,000 each on 22 May 2011. What is Noah’s total chargeable gain arising on the sale of the two paintings? 145 Liam: purchased an antique glass vase for £22,000 on 30 March 2007, incurring legal fees of £800. The market for antique glassware has since slumped and Liam sold the vase for £5,500 on 1 Janwary 2023 incurring auctioneer fees of £300, What is Liam’s allowable loss on this disposal? A £36,000 B £16,800 c £17,100 D £17,600 June 2015 OT question For the tax year 2022/23, Nog has a chargeable gain of £23,700 and a capital loss of £10,100, She has unused capital losses of £5,300 brought forward from the tax year 2021/22. What amount of capital tosses can Nog carry forward to the tax year 2023/24? September 2015 OT question On 31 March 2023, Jessica sold 8 copyright for £28,500. The copyright had been purchased on 1 April-2017 for £21,600 when it had an unexpired life of 15 years. What is Jeesica’s chargeable gain in respect of the disposal of the copyright? A B £20,400 C £16,200 DB £7,800 Aiden bought 30 acres of land on 1 March 2015 for £200,000. On 4 March 2017 be sofd 10 acres of the land for £150,000. At this time the remaining tand was worth £250,000. On 1 January 2023 Aiden sold the remaining acres for £425,600. identity Aiden’s chargeable gain and the due date for the capital gains tax payable thereon, Due date 31 January 2023 Chargeable gaia KAPLAN PUBLISHING 31 January 2024 £725,600 A 8 £738,100 c Dp Bi https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 129 129 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK: TAKATION (FA2022) 148 December 2016.0T question Hablb purchaseda copyright on 30 April 2006 for £31,320. The remaining life of the copyright at the date of purchase was 30 years. On 30 April 2022, Habib sold the copyright for £27,900. What is Habib’s chargeable gain or allowable loss for the tax year 2022/23 in respect of the disposal of the copyright? A (£3,420) B £11,196 ¢ £0 Do £13,284 150 Cooper purchased 4 holiday home for £142,000 on 1 October 2016. The property was damaged In a fire on 1 January 2017. Cooper received compensation of £60,000 from his insurance company On 31 January 2038. He spent £70,000 on restoring the home in March 2018 and It was worth £190,000 after restoration. Cooper made an election such that a part disposal did not arise in the tex year 2017/18. Cooper sold the holiday hame for £230,000 on 1 March 2023. What is Cooper's chargeable gain on the sale? £ 151 September 2015 OT question On 10 January 2023, a freehold property owned by Winifred was damaged by a fire. The property had been purchased on 29 May 2010 for £73,000, Winifred received insurance proceeds of £37,200 on 23 February 2023, and she spent a tote! of £43,700 during March 2023 restoring the property. Winifred has elected to disregard the part disposal. What is the base cost of the restored freehold property for capital galns tax purposes? 152 A = £68,500 8 £77,500 c £114,700 D £35,800 Madison gave 10,000 shares in Miles plc to her daughter during the tax year 2022/23. The shares were quoted in the Stock Exchange Official List et 120p— 1536p per share.on the day of the sale. Madison acquired 15,000 shares In Miles plc on 1 January 201? for £4,000, What is the chargeable gain on the gift of the 10,000 shares? £ B2 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 130 130 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE 153 GAINS QUESTIONS : SECTION 2 Clarissa has disposed of the following shares and securities during the tax year 2022/23: 1 ss Gilt for £8,000 which were purchased in 2020 for £2,500, 2 20,000 shares in Martin pic sold to her sister for £7,000. The morket valuc of the shares on the dey of the sate was £22,309, The shares were purchased for £8,000 in February 2020: What is Clacissa’s total chargeable gain on these disposals in the tax year 2022/23? 154 A £4500 B £4,300 Cc £5,500 BD £3,800 Emliy had the foBowing transactions In the shares of Elijah Plc during 2022: Number of shares 1 june Purchase 1 October Purchase 1 October Sale 23 October Purchase 22,000 2,000 20,000 3,000 Select the share purchases which will be matched to the 20,000 shares sold on 1 October 2022. Share purchases 20,000 shares from the purchase on Liune Matching order Matched first 2,000 shares from the purchase on 1 October Matched second 3,000 shares from the purchase on 23 October Matched third 15,000 shares from the share pool as at 1 October 17,000 shares from the share pool as at 1 October 18,000 shares from the share pool as at 1 October 20,000 shares fram the share pool as at 1 October No further matches needed No further matches needed 155 In February 2023 Siobhan,a higher rate taxpayer, sold shares in Banana Ltd, a trading company. She realised a gain of £45,300. Siobhan acquired the newly issued shares In July 2019. Stobhan has never worked at Banana Ltd, nor has she made any previous share disposals. What is the capital gains tax Wability arising on the disposal of the sharesin February 2023 assuming all available reliefs are dalmed and Slobhan makes no other disposals in the tax year 2022/23? £ KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 131 131 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAKATION {FA2022) 156 Caleb had the following transactions in Harper pic shares: 26 Aprl 2011 Purchased 40,000 shares in Harper pk for £260,000 19 May 2014 Harper ple announced2 2:4 rights issue at £4 per share. Caleb took up his rights in full 3 May 2018 25 March 2023 Harper ple announced 8 1:5 bonus issue «= Caleb sold 12,500 shares for £175,000 Identify the allowable cost for capital gains tax purposes of the shares disposed of on 25 March 2023, and the due-date for the capital gains tax payable thereon. Due date | | Allowable cost | £62,500 | £75,000 157 31 July 2023 31 Janusry 2024 A c B o Hunter purchased 50,000 shares: in Grayson Ltd for £90,000 on 30 May 2012. On 1 November 2022 Grayson Ltd was taken over by Riley plc. Grayson Ltd shareholders receved £3 cash and 2 Riley pbc ordinary £1 shares for. every Grayson Ltd share. immediately sfter takeover Riley pk shares were worth £1.20 each. What is Hunter's chargeable gain as a result of the takeover? £ 158 September 2016 OT question On 31 March 2023, Angus sold a house, which he had bought on 31 March 2009. Angus occupied the house a2 hie main residence until 32 March 2014, when he left for employment abroad, Angus returned to the UK on 1 April 2016 and lived in the house until 31 March 2017, when he bought a fist in a neighbouring town and made that his main private reskience, What is Angus’ total number of qualifying months of occupation for private residence relief on the sale of the house? 159 A 72 menths 8 63 months C 105 months D 96 months Masuma sold her only home and realiseda gain before reliefs of £120,000, She had used six of the ten rooms herself and let out the other four for the duration of her ownership, What is her chargeable gain, assuming she daims all available reliets? £ aA KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 132 132 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE 160 GAINS QUESTIONS : SECTION 2 In October 2022 Bhavin sold his business, which he had run for nine years as a sole trader, realising chargeadle gains on disposal of the business assets of £3,251,200, Bhavin is a2 higher rate taxpayer and has not made any previous disposals. What is Shavin's capital gains tax lability for the tax year 2022/23 assuming he has made no other gains during the tax yeer or any previous tax years, and claims all available reliefs? A = E726,892 B £550,240 C £547,780 BD = £323,890 161 The disposal of which TWO cf the following assets qualifies for rollover relief? ”~mon ww > & portable sewing machine used by a sole trader in his business Shares in an individual's personal trading company Land used by 2 sole trader in his business Shares in the company of which the Individual is an employee A building owned by @ company and let out to other businesses The goodwillin a sole trader's business June 2015 OT question Alice is in business as a sole trader. On 13 May 2022, she sold a freehold warehouse for £184,000, and this resulted in a chargeable gain of £38,600. Alice purchased a replacement freehold warehouse on 20 May 2022 for £143,000. Where possible, Alice always makes a chim to roll over gains against the cost of replacement assets. Both buildings have been, or will be, used for business purposes by Alice. What is the base cost of the replacement warehouse for capital gains tax purposes? 163 A £181,600 B £104,400 c £143,000 DB £102,000 In October 2011 Hitesh sold a factory for £230,574 and realised a gain of £31,083. In May 2042 he bought a warehouse for £231,211. He then sold the warehouse In December 2022 for £270,213. Both of the bulldings were used for the purposes of his sole trader business. What is the chargeable gain arising on the disposal of the warehouse In December 2022 assurning all available reliefs arc claimed? £ KAPLAN PUBLISHING as https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 133 133 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) 164 Uonel owns 50% of the ordinary share capital in Giraffe Ltd anc 2% of the ordinary share capital im Zebra pic. Both are trading companies and Lionel has SO% and 2% of the voting rights respectively. Which TWO of the following would be a qualifying asset for the purposes of gift holdover rdief? A Part of Lionet's shareholding in Giraffe Ltd, raprasenting 2% of the total ordinary share capital in Giraffe Ltd 8B A building owmed by Lionel and used in the trade of Zebra pic c Lione?s entire holding of Zebra ple shares DBD Awarehouse owned by Lionel and used by Giraffe Ltd for storing raw materials The jour shareholders of Hephant itd are selling their shores. They awn the share capaal as follows: Amin; 32% Ben: 32% Gamilla: 32% Damitri- 4% All shares have equal voting rights. Amin has never worked for the company. Ben works part time, and Camilia and Dimitrl work full time for the company. Camilla only joined Elephant Ltd 3 months ago and has owned her shares for three months, whereas Ben and Dimitri have worked for the company and owned their shares for five years. Only will qualify for business asset disposal relief on the sale of their shares. > Amin 8 Select the Individual that appropriately fills the gap above: Ben on Camilla Dimitri December 2016 OT question Anika sold her entire holding of 3,000 £1 ordinary shares in Distribo Ltd, a trading company, to her son, Hemi, for £53,000 on 14 July 2022. The market value of the shares on that date was £98,000. Anika had purchased the 3,000 shares on 28 October 2010 for £41,500. She has never worked for Distribo Ltd, ona ff YF What is the arnount of gift (holdover) relief (if any) which could be daimed in respect of the disposal of these shares? £0 £11,500 £45,000 £56,500 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 134 134 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 COMPANIES — CHARGEABLE GAINS 167 Forrest Ltd bought a warehouse for £250,000 in December 2009, incurring £20,000 legal fees in connection with tha acquisition. The warehouse was sold for £830,000 in May 2022, incurring legal fees of £30,000. Assume the relevant indexation factors are as follows: December 2009 to December 2017 0.276 What Is the chargeable gain arising on the sale of the warehouse? A —- £461,000 B= £455,480 C £447,200 BD = £51,000 168 Harrop Ltd sold two assets during the accounting period: 1 Twoacres of land which it had acquired for £20,000 and solid for £45,000. The relevant indexation factor is 1.418. 2 A warehouse which it had acquired for £80,000 and sold for £75,000. The relevant indexation factor is 0.702. on @ > What is the company’s allowable loss for the period, assuming it sold no other assets? £54,520 £8,360 £5,000 £61,160 169 {inthe year ended 30 June 2022 Lompy Ltd had a tax adjusted trading profit of £800,200 and property income of £45,000, It also realised a chargeable gain of £25,000 and a capital loss of £80,000 on assets that were used for the purposes of the property business. In the year ended 30 June 2021 it had a tax adjusted trading profit of £520,000 and chargeable gains of £9,000. How much, if any, of the capital loss arising in the year ended 30 June 2022 is carried forward to the year ended 30 June 20237 £ KAPLAN PUBLISHING 87 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 135 135 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK>: TAXATION 170. (FA2022) Rimbo Ltd had the following transactions In the shares of Profitable Ltd, an Investment: company: Number £ April 1995 Purchase 25,000 33,000 June 2022 Sale 8,000 26,000 Assume the ralevant indexation factors are as follows: April 19595 to December 2017 0.866 What is the amount of the indexed cost available on the sale of the shares in June 20227 171 A £61578 8 £28,578 Cc D -E49,705 £10,560 =~On LOctober 2022 Smooth Lod sold a factory for £850,000, realisinga gain of £250,000. On 1 November 2021 the company had purchased an immovable machine for £900,000. The machine {s expected to be used by the company for at least 25 years. The company prepares accounts to 31 December, The company wishes to defer the gain arising on the sale of the factory by making 2 rollover relief election in respect of the acquisition of the machine. For each of the following statements celect whether it is true or false: True =| False | The £250,000 gain which could be deferred as a result of the | acquisition of the machine will become chargeable on | L October 2032 ‘The company must make a rollover relief election by "31 December 2026 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 136 136 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 PRACTICE SECTION 8 OBJECTIVE TEST CASES INDIVIDUALS — CAPITAL GAINS TAX 172 MICHAEL CHIN (ADAPTED) Michael Chin made the following disposals of assets during the tax year 2022/23: 2 On 30 June 2022 Michael sold a business that he had run as a sole trader since 1 January 2018. He realised the following gains and losses on the chargeable assets of the business: £ Goodwill Freehold property Storage unit 60,000 64,000 {13,000} The goodwill has been built up since 1 January 2018. The freehold property had been acquired 6 months prior to the date of disposal and the storage unit had been acquired ox L June 2019, 2 On 8 December 2022 Michsel gave Plka, his daughter, his entire holding of 50,000 50p ordinary shares (a 60% holding) in Minnow Ltd, an unquoted trading company. The market value of the shares on that date was £180,000, Michael had originally purchased the shares on 5 January 2022 for £87,500, On $ December 2022 the market value of Minnow Ltd's chargeable assets was £250,000, of which £200,000 was in respect of chargeable business assets. Michael has never been employed by Minnow Led. 3 On 28 February 2023 Michael sold a pairing for £5,900 after auctioneer’s fees of E556, He had originally acquired the painting on 1 June 2024 for £4,000. 4 On 15 March 2023 Michael gave Milka, his daughter, the following assets: - ~ Necklace valued at £4,000. Acquired by Michael for £5,000. Boat valued at £80,000. Acquired by Michael for £70,000. Machine used for trading activities valued at £7,000. Acquired by Michael for £8,000, Michael Incurred a capital loss of £16,800 during the tax year 2020/21, and made a chargeable gain of £17,100 and 2 capital joss af £7,000 during the tax year 2021/22. Assume that the tax rates and allowances for the tax year 2022/23 apply throughout. i What isthe net chargeable gain on the disposal of the sole trader business on 30 June 2022 that qualifies for business asset disposal relict? A = £124,000 B £111,000 € £60,000 D £51,000 KAPLAN PUBLISHING a9 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 137 137 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION 2 (FA2022) Whst amount of gift holdover relief, If any, is available on the gift of shares In Minnow Ltd on 8 December 20227 £ 3 What bs the chargeable gain, Hf any, arising on the sale of the painting on 28 February 20237 c £1,244 £9 £1,900 b £927 4, 8 4 Match tha following gifts made by Michael on 15 March 2023 to thecorrect category, based on whether or not the gift will result in a chargeable gain or allowable loss: Asset given Necklace Boat Machine Chargeable gain/ollowable loss Gain not chargeable/loss not allowable S What amount of capital losses are brought forward from the tax year 2021/22 and how should they be used? Tick the appropriate box. Lossb/f | Use against gains qualifyingfor | Use against gains not qualifying business asset disporal reliet business asset disposal relief £16,800 £19,000 173 BO {ADAPTED} You are a traliee accountant and your manager has asked for your help regarding a client who disposed of assets during the tax year 2022/23. Bo Neptune On Bi July 2022 Bo made a gift to his son, Chi, of his entire holding of $0,000 £1 ordinary shares (8 100% hokding) in Botune Ltd, an unquoted trading company. The market value of the shares on that date was £210,000. The shares had been purchased by Boon 22 January 2015 for £94,000. Bo-anc Chi have elected to hold over the gain as a gift ofa business asset: Bo has taxable income in the tax year 2022/23 of £30,700 and had made a chargeable gain on the sale ofa painting of £20,700. Bo has never made any other chargeable disposals. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 138 138 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 On 30 September 2022 Bo sold a house for £222,000, resulting In 2 chargeable gain of £172,000. The house had been purchased on 1 October 2010, He occupied the house as his main residence from the date of purchase unt™ 30 Septernber 2012. Bo then moved In with his girlfriend and the house wes unoccugled between 1 October 2012 and 30 September 2022, Throughout the period 1 October 2010 to 30 September 2022 Bo did not have any other main residence, i What is ‘Chi’s base cost in the 50,000 £3 ordinary shares in Botune Ltd? A = £34,000 B =. £106,300 c £116,000 D 2 £210,000 If Bo had Instead sold the shares in Botune Ltd to Chi for £160,000, for each of the following statements select whether it Is true or false: True False Bo’s chargeable gain would have been £65,000 Bo and Chi would not have been able to claim gift holdover relief The base cost of the shares for Chi would be £210,000 3 When ls the capital gains tax due date(s) for the tax year 2022/23 and by what date must Bo and Chi make the election to hold over the gain on the Botune Ltd shares? Tick the appropriate box. Election date S April 2027 31 January 2028 CGT duedate | 31 January 2023 31 January 2024 4 Assuming that no other chargeable gains arsein the tax year, how much capital gains tax would Bo pay on the disposal of the painting in the tax year 2022/23? 5 How much private residence relief is So entitled to on the scale of his main residencar A £172,000 5 £82,417 C £39,417 D = £36,598 KAPLAN PUBLISHING $1 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 139 139 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> 174 TAXATION (F42022) ALPHABET LTD (ADAPTED) a? Walk in the footsteps ofa top tutor On 15 October 2022 Alphabet Ltd, an unquoted trading company, was taken over by XYZ plc. Prior to the takeover Alphabet Ltd’s share capital consisted of 100,000 £1 ordinary shares and uncer the terms of the takoover the sharchalders received either cash of £6 per share of one £1 ordinary share in X¥Z pic for each E2 ordinary share in Alphabet Ltd. The folloveing information is avaiable regarding Uwee shareholders of Alphabet btd: Alol Aloi Aas been the managing director of Alphabet Utd since the company’s incorporation on 1 January 2012, and she accepted X¥Z pic's cash akernative of £6 per share in respect of her shareholding of 60,000 £1 ordinary shares in Alphabet itd. Aloi had originally subscribed for 50,000 shares in Alphabet Ltd on 1 January 2022 at their par value, and purchased 2 further 10,000 shares on 20 May 2013 for £13,600. Bon Bon has been the sates director of Alphabet Ltd since 1 February 2021, having mot previously been an employee of the company. She accepted XYZ pic's share alternative of one £1 ordinary share for each of her 25,000 £1 ordinary shares in Mphabet Ltd. Bon had purchased her shareholding on 1 February 2021 for £92,200. On 4 March 2023 Bon gave 10,000 of her £1 ordinary shares in XYZ pic to her brother for £50,000, On that cate the shares wore quoted on the Stock Exchange Deily Officia| List at £7.10 — £7.18. Gift holdover relief is not available im respect of this disposal. Cherry Cherry has been an employee of Alphabet Ltd since 1 May 2013. She accepted XYZ ple’s share alternative of one £1 ordinary share for each of her 3,000 £3 ordinary shares In Alphabet Lid. Cherry had purchased her shareholding on 20 June 2014 for £4,800. On 13 November 2022 Cherry sold 1,000 of her £1 ordinary shares in XYZ ple for 6,600. Cherry died on S Aprit 2023, and her remaining 2,000 £1 ordinary shares in XYZ pic were inperited by her daughter, On that date these shares were valued at £15,600, 1 Which of the following individuals met the qualifying conditions for business asset disposat relief as regards their shareholdings in Alphabet itd? Meets the conditions for Does not meet the conditions for business asset disposat relief business asset disposal relief Ajol | Bon 2 What is the chargeable gain, if any, arising on Aloi on the takeover of Alphabet Ltd? £ KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 140 140 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 £13,120 gain £34,120 gain £34,520 gains D (£20,800) loss > oe What Is the chargeable gain or allowable loss.on the disposal of shares In XYZ pic by Bon to her brother? By what date(s} must Bon pay any capital gains tax duc as a result of the disposal of > 31 January 2024 sw 30 September 2023 fo 4 March 2024 9 shares in XYZ pk? 5 December 2023 What Is the allowable cost that will be used by Cherry's daughter in the capital gains computation on @ subsequent disposal of her inherited shares in XYZ plc? a £15,600 B £4,800 c D £2,000 £3,200 175 JORGE JUNG (ADAPTED) Jorge Jung disposed of the following assets during the tax year 2022/23: i On 30 September 2022 Jorge sold a copyright for £2,200. The copyright had been purchased on 1 October 2020 for £7,000 when it had an unexpired fife of 10 years. On 6 October 2022 Jorge sold a painting for £6,409. The painting had been purchased on 18 May 2007 for £2,200. Jorge incurred selling fees of £350 on the disposal. On 3 Decernber 2022 Jorge sold two acres of land for £92,000, Jorge’s father had originally purchased three acres of land on 4 August 2009 for £19,500, His father died on 17 June 2017, and the land was inherited by Jorge. On that date the three acres of land were valued at £28,600. On 1 December 2017 Jorge Incurred legal fees of £500 defending his title to the three acres of land. The market value of the unsold acre of land as at 3 December 2022 was £38,000, On 14 Ianuary 2023 Jorge disposed of 5,000 £1 ordinary shares In a UK company to another individual. The market value of the shares on that date was £64,800. Jorge had purchased the shares for £26,300, What Is the arnount of the chargeable gain arising on the disposal of the copyright? A = £5,800 B £2,400 C £1,200 D £960 KAPLAN PUBLISHING $s https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 141 141 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> 2 TAXATION (F42022) What is the amount of the chargeable gain arising on the disposal of the painting? £ 3 4 What is the allowable cost used in the capital gains tax disposal computation for the sale of the two acres of land on 3 December 2022? A £20,740 B £14,154 c £20,594 D £19,400 Jorge wishes to make a gift holdover relief clain in respect of the gain on the disposal of the shares on 14 January 2023, For cach oF the following statements select whether it is true or false in relation to the gift hotdover reliet claim: . True False | The company must be an unquoted company The company must not own any non-business assets | The company must be a trading company | Jorge must have owned the shares for at least two years 5s 176 Assuming Jorge sold the shares on 14 January 2023 realising a chargeable gain, which TWO of the following conditions must be met for business asset disposal relief to be available? A Jorge must make a claim for the rellet by 31 January 2025 B Jorge must have worked full time for the company for at least two years prior to the disposal Cc Jorge must have owned the shares for at least two years prior to the disposal D Jorge must be cisposing of at least 5% of the company’s shares ALBERT AND CHARLES (ADAPTED) we Wark fn the footsteps ofa top tutor Albert and Victoria On 12 February 2023, Albert sold 3 house for £840,000, which he hac owned individually. The house had been purchased on 12 February 2007 for £222,900, Throughout the period of ownership the house was occupied by Albert and his wife, Victoria, as their main residence, One-quarter of the house was always used exclusively for business purposes by the couple. Forthe tax year 2022/23 Albert ts = nigher rate taxpayer and did not make any other disposals of assets. 54 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 142 142 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 For the tax year 2022/23 Victoria had taxable income of £21,440 and made chargeable gains on other disposals of £12,300, Charles and Daphne On 23 October 2022 Charles sold 4,000 £1 ordinary shares in Restoration ple, 2 quoted trading compeny, to his daughter, Daphne, for £20,000 when they were valued at £31,600. Gift holdover relief is not available In respect of this gift. The compeny has 4 million £1 ordinary shares in issue. Charles has never worked for the company but Daphne has worked for the company for the previous five years. Charles acquired his shares in the company as follows: 1 March 2014 20 bully 2018 Purchased 20,000 shares for £19,800 Purchased 8,000 shares for £27,800 On 4 April 2023 Daphne sold a painting for gross proceeds of £5,300. The painting had been purchased for £13,000 in September 2006. Daphne incurred auctioneer's fees of £300 in relation to the disposal. 1 What Is the amount of private residence relluf available on the disposal of the house bry Albert? A £154,275 B £462,825 C £469,253 D £453,600 2 Albert's brother Ernest has told Albert it would have been better to have transferred 50% ownership of the house to Victoria prior to its disposal. Which TWO of the following statements are correct? As The transfer to Victoria would have been at nil gain/nil loss B Private residence relief -zvailable would not have been aveilable in relation to Victaria’s gain on the disposal of the house € The amount of capital gains tax that would have been saved ls £4,553 D = The amount of capital gains tax that would have been saved ts £1,626 3 4 Whatisthe allowable base cost used in the capital gains tax computation on Charles’ sale of shares to Daphne? Which of the following are valid reasons why gift holdover relief WAS NOT available on the sale of shares to Daphne? Valid reason Not a valid reason Charles has never worked for the company Daphne paid Charfes for the shares Charles did not owm atleast 5% of the ordinary shares and voting rights in Restoration pk KAPLAN PUBLISHING 35 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 143 143 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> 5 TAXATION (FA2022) What is Daphne’s allowable loss, if any, In respect of the sale of the painting on 4 April 2023? (£7,300) loss B £7,000) loss c D (£8,000) loss 177 ZOYLA (ADAPTED) eg Wolk in the footsteps of a top tutor Zoyla's capital gains tax (CGT liability for the tax year 2022/23 is calculated as follows: Gain £ Ordinary shares in Minor Led Ordinary shares in Major plc Annual exempt amount 34,700 44400 {12,300) 130,800 CGT: £10,600 = LOK 1,060 £120,200 * 20% 24,040 25,200 Minor Utd is an unquoted trading company with an &sued share capital of 200,000 £1 ordinary shares. Zoyla has been a director of this company since 1 April 2016. On 20 June 2022, Zoyla sald 20,000 of her holding of 45,000 ordinary shares in Minor Ltd. She had originally purchased 22,560 shares on 15 August 2020 for £117,000. On 12 December 2020, Minor Ltd made a 1 for 2 rights issue. Zoyla took up her allocaticn under the rights issue in full, paying £7.40 for each new share issued. Major pie is a quoted trading company withan sued share capital of 2,000,000 £1 ordinary shares, Zayla has been an.employee of Major pic since 1 Novermber 2020 when she acquired 16,000 ordinary shares in the company. On 6 March 2023, Zoyla sold ner entire holding of ordinary shares in Major pic to her son for £152,000. On that date, shares in Major plc were quoted on the stock exchange at £9.62 — £9.74. Zoyia will not make any other disposals in the foreseeable future, and her taxable income will remnain unchanged, KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 144 144 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 Why did neither of Zoyla’s share disposals during the tax year 2022/23 qualify for business asset disposal relief? Company She of shareholding Holding period Minor ttd Major ple Wheat cost figure will have been used in calculating the chargeable gain on Zoyla’s disposal of 20,000 ardinary shares in Minor Ltd? A £126,000 B £104,000 C £143,000 D £252,000 What proceeds figure will have been used In calculating the chargeable gain on Zoyla’s disposal of 16,000 ordinary shares in Major pic? (f Zoyla hed delayed the sale of her 16,000 ordinary sheres in Major pic until 6 April 2023, by how long would the related CaT Hability have been deferred? A 11 months 8 12 months € Imonth & 6months Which of the following statements about how much CGT Zoyla would have saved if she had delayed the sale of her 16,000 ordinary shares in Major pic until the following tax year are true? Assume that the tox rates and allowances for the tax year 2022/23 continue to apply. True | False Zoya would not have saved any CGT, but would have benefited from the delayed payment date Zoyla would have saved CGT of £12,300x 20% = £2,460 due to the AEA for the tax year 2023/24 being avaltable Zoyla would have saved CGT of £10,600x 20%= £2,120 due to the remaining basic rate band for the tax year 2023/24 being available KAPLAN PUBLISHING 37 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 145 145 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION 178 (FA2022) HAL) AND GOMA (ADAPTED) You should assume that the tax allowances for the tax year 2022/23 applied in previous tax years. Hall and Goma are 3 married couple. Capital losses brought forward Hali had capital losses of £39,300 for the tax year 2020/21. He had chargeable gains of £16,300 for the tax year 2021/22. Goma had capital losses of £9,100 and chargeable gains of £6,900 for the tax year 2021/22. She did not have any capital losses for the tax year 2020/21. Ordinary shares in Lima Ltd On 24 july 2022, Hall sold 5,000 €1 ordinary shares in Lima Lid, for £4.95 per share. Lima Ltd's shares have recently been selling for £5.30 per share, but Hali sold them at the lower price because he needed a quick sale. Goma, Hali's wife, had originally subscribed for 30,000 ordinary shares in Lima Ltd at their par value of Ef per share on 28 July 2011. On 18 August 2020, she gave 8,000 ordinary shares to Hall, On that date, the market value for 8,000 shares was £23,200, Hali and Goma will both dispose of their remaining shareholdings in Lima Ltd during the tax year 2023/24. However, they are unsure as to whether these disposals will quality for business asset disposal relief. Antique table On 11 October 2022, an antique table owned by Hali was destroyed in a fire. The table had been purchased on 3 June 2023 for £44,000. Hali received insurance proceeds of £62,000 or 12 December 2022, and on 6 January 2023, he purchased a replacernent antique table for £63,600, Hali will make a claim to roll over the gain arising from the receipt of the insurance proceeds. Disposals by Goma during the tax year 2022/23 be Goma disposed of the following assets during the tax year 2022/23, all of which resulted in gains: Qualifying corporate bonds sold for £28,300 we Acar (suitable for private use) sold for £11,600 An antique vase sold for £6,200 ve A copyright (with an unexpired Efe of eight years when. purchased) cold for £5,400 1 Quoted shares held within an individual savings account (ISA) sold for £24,700 What amount of unused capital losses do Hali and Goma have brought forward to the tax year 2022/23? Hall Goma A =-«£23,000 £9,100 B £23,000 £2,200 C £35,300 £9,100 B £35,300 £2,200 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 146 146 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 2 CHARGEABLE GAINS QUESTIONS : SECTION 2 What cost figure and what value per share (disposal value) will be used in cabculating the chargeable gain on Hali's sale of 5,000 ardinary shares in Lima Ltd? Cost figure A = £5,600 £4.95 B £14,500 £4.95 Cc £14500 £5.30 D 3 Value per share £5,000 £5.30 in deciding whether Halli and Goma’s future disposals of their shareholdings: in Lima Utd will qualify for business asset disposal relief, which one of the following Statements is correct? & — Maliand Gorna must be directors of Lima Ltd B Lima Lid must be @ trading company C _—Hali and Gora must have shareholdings of at least 10% each in Lima Ltd D —s The qualifying conditions must be met for o period of three ycors prior to the date of disposal 4 What is the base cost of Hali’s replacement entique table for capital gains tax (CGT} purposes? As £62,000 8 £53,600 C = £45,600 D 5 £44,000 How many of the five assets disposed of by Goma during the tax year 2022/23 are exempt assets for the purposes of capital gains tax (CGT)? KAPLAN A Three B Fve € Two D Four PUBLISHING $5 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 147 147 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (F42022) COMPANIES — CHARGEABLE GAINS 179 HAWKLTD (ADAPTED) @ Walk in the footsteps of a top tutor Hawk Ud sold the following éssets during the year ended 31 March 2023; 1 Cn 15 April 2022 a freehold office budding was sold for £250,000, The office building had been purchased on2 July 1998 for £81,000. Hawk Ltd incurred legal fees of £3,200 in connection with the purchase ‘of the office bufding and incurred £5,200 repairing the building following a fire in September 2019. 2 On 30 Apr 2022 a freehold factory was soid for £500,000 (before deducting legal feas of £3,840) realising an unindexed gain of £300,000 and an indexed gain of £240,000. The factory has always been used by Hawk Ltd for business purposes. Hawk Ltd plans to reinvest some or all of the proceeds in the purchase of = new freehold factory. 3 On 1 July 2022 White pic was teken over by Black plc Hawk Ltd had purchased 3,000 ordinary stares in White ple for £8,000 in June 2002. On takeover, Kawk Ltd received 2 ordinary shares and 2 preference shares in Black pic for each orclinary share in White pic. Imenediately after the takeover the ordinary shares in Black plc were quoted at £3 and the proference shares at £2. indexation factors are as follows: luly 1998 to December 2017 0.706 June 2002 to December 2017) 0.578 1 2 What are the total allowable costs available to deduct from the disposal of the freehold office building on 15 April 2022? A «£138,286 B £143,645 C D £141,386 £148,845 For each of the following gifts select whether they are qualifying or non-qualifying assets for companies for rollover relief purposes. Qualifying Non-qualifying | Goodwik acquired on the purchase of the _trade and assets of snother business J | Vehicle costing £150,000 with an estimated _ useful life of 50 years | Land acquired for business use | #5%shareholding of an unquoted trading LSS 100 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 148 148 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 3 CHARGEABLE GAINS QUESTIONS : SECTION 2 What Is the maxirnurm amount of rollover rellef that Hawk Ltd can claim in respect of the gain on the factory and what is the latest date by which the reinvestment must take place? Tick the appropriate box. ] | latest date | 4 "Maximum rollover relief £240,000 £300,000 30 April 2025 31. March 2026 What is the minimum amount that will have to be reinvested in qualifying replacement business assets in order for the company to daim the maximum possible amount of rollover relief in respect of the gain on the factory? £ 5 What is the indexed cost of the total number of ordinary shares in Black pic on L July 2022? A £7,574 8 £12,624 Cc £18,000 D «£30,000 180 KATLTD (ADAPTED) ee} Wolk in the footsteps of a top tutor Kitten is the controfing shareholder in Kat Ltd, an unquated trading company. Kat Ltd Kat itd sold 4 freehold factory on 30 November 2022 for £394,090, which resulted in @ chargeeble gain of £131,530 In the company’s year ended 31 March 2023 (after the deduction of indexation and professional fees}. The factory was purchased on 1 October 2005 for £138,600, and capital improvements were made at a cost of £23,400 during Decernber 2007. The relevant indexation factors are as Fallows: October 2005 to December 2017 0.439 Decernber 2007 ta December 2017 0.319 Kat Ltd is unsure how to reinvest the proceeds from the sale of the factory. The company is considering either purchasing a freehold warehouse for £302,000, or acquiring a leasehold office building on a 40-year lease for a premium of £370,000. If either reinvestment is made, it wil teke place on 30 September 2023, Al of the above buikiings have been, or will be, used for the purposes of Kat Ltd's trade, Kitten Kitten sold 20,000 £1 ordinary shores in Kat Utd on S October 2022, which resulted in a chargeable gain of £142,200. This disposal qualified for business asset disposal relief. Kitten had originally subscribed for 90,000 shares in Kat Ltd on 7 July 2013 at their par value. On 22 September 2016, Kat Ltd made a 2 for 3 rights issue, Kitten took up her allocation under the rights issue in full, paying £6.40 for each new share ssued. Kitten also sok an antkyue vese on 16 January 2023, which resultec in a chargeable gain of £29,100. For the tax year 2022/23, Kitten had taxable income of £12,000. KAPLAN PUBLISHING i101 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 149 149 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION i (FA2022) What amount of indexation allowance will have been deducted in calculating the chargeable gain of £131,530 on the disposal of Kat Ltd's factory? £68,310 2 B £60,845 Cc £72,118 D £51,678 If Kat Lid decides to purchase the freehold warehouse and makes aclaim to roll over the chargeable gain on the factory under the roliawer relict rules, which of the following statements are true? True | False The base cost of the warehouse for chargeable gains purposes will be £170,470 - The claim for rollover relief against the warehouse must be made by 31 March 2027 Afurther claim for rollover rellef may be made if another qualifying asset is acquired by 31 March 2026 3 = Wt Rat itd decides to. acquire the leasehold affice building and makes a claim to hold over the chargeable gain on the factory under the rollover relief rules, what is the batest date by which the held-over gain will crystaltise? 4 A 10 years. from 30 November 2022 B The date when the office building Is sold C 40 years from 30 September 2023 DB 10 years from 30 September 2023 What cost figure will have been used in calculating the chargeable gain on Kitten’s disposal of 20,000 ordinary shares in Kat Ltd? S Whatis Kitten’s capital gains tax (CGT) liability for the tax year 2022/23 and by when must it be paid? Tick the appropriate box, CGT liability £27,580 £18,810 Bue date | 31 July 2022 31 January 2024 102 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 150 150 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 PRACTICE SECTION C CONSTRUCTED RESPONSE QUESTIONS INDIVIDUALS — CAPITAL GAINS TAX 181 DAVID AND ANGELA BROOK (ADAPTED) ey Wolk in the footsteps of a top tutor This scenario relates to one requirement. Dovid and Angela Brock are a marricd couple, They disposed of the following assets during the tax yesr 2022/23: Jointly owned property On 30 September 2022 David and Angela sold a house for £381,900. The house had been purchased on 3 October 2002 for £86,000. David and Angela occupied the house as their matn rescence from the date of purchase until 3! March 2006. The house was then unoccupied between 1 April 2006 and 31 December 20039 due to Angela being required by her employer to work ekewhere in the United Kingdom From 1 January 2010 until 31 December 2016 David and Angela again occupied the house as their main residence. The house was then unoccupied until it was sold on 30 September 2022. Throughout the period 1 October 2002 to 30 Septernber 2022 David and Angela did not have any other main residence. David Brook On 5 May 2022 David transferred his entire shareholding of 20,000 £1 ordinary shares in Bend Ltd, an unquoted trading company, to Angela. On that date the shares were valued at £64,000, David's shareholding had been purchased on 21 June 2019 for £48,000, Angela Brook On 7 July 2022 Angela sold 15,000 of the 20,000 £1 ordinary shares in Bend Lte that had been transferred to her from David. The sale proceeds were £52,400. Neither David nor Angela has ever worked for Bent Ltd, On 15 October 2022 Angela disposed of a small business she had been running part time for many years. The only chargeable asset In the business was a warehouse and this resulted in a gain of £3,700. Angela has taxable Income of £27,145 for the tax year 2022/23. David does not have any taxable income. Required: Compute David and Angela's respective total capital gains tax liabilities fer the tax year 2022/23. ignore any payments on account. i (10 marks) KAPLAN PUBLISHING 103 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 151 151 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> 182 TAXATION (FA2022) BILL DING ie Wolk in the footsteps ofo top tutor This scenario relates to three requirements. Bill Ding has run @ construction corpeny, High Rise Utd since he purchased the entire shareholding for £112,000 in 2003. He has worked for the company since purchase. Bill has decided to retire and on 17 August 2022 Bill made a gift of his entire holding of High Rise Ltd shares to his daughter, Belle, who also works for the company. The market value of the shares on that date was £260,000. On 17 August 2022 the market value of High Rise Ltd’s chargeable assets was £180,000, of which £150,000 was In respect of chargeable business assets. Bill and his daughter have elected to hold over the gain on this gift of a business asset Belle plans to sel the shares In High Rise Ltd on 31 March 2023, when they are expected to be worth £265,000 in order to fund a new business venture, Neither BIR mor Belle has made any previous disposals chargeable to capital gains tax, and both are higher rate taxpayers. Required: (a) Calculate the gains arising and capital gains tax liabilities for Bill and Belle on the gift of High Rise Ltd shares to Belle and the subsequent sale by Belle. HE Assume that Bill and Belle make a joint claim for gift holdover relief, and state the due date for this claim. (5 marks) (b) Recalculate the gains arising and capital gains tax Gabiliies for Bill and Belle, assuming a joint claim for gift holdover relief is not made. = (3 marks) (c) Briefly conclude, including a calculation of the tax saving, on which route would be preferable for Bill and Belle. #4 (2 marks) {Total: 10 marks) 183 JEROME (ADAPTED) we Walk in the footsteps of a top tutor This scenario relates to two requirements. Jerome made the following gifts to family members during the tax year 2022/23: 1 On 28 May 2022, Jerome made a gift of a house valued at £187,000 to his wife, Jerome's uncle had originally purchased the house an 14 July 2001 for £45,900. The uncle diedon 12 June 2010, and the house was inherited by Jerome. On that date, the house was valued at £112,800. Jerome has never occupied the house as his main residence 2 On 24 June 2022, Jerome made a gift of his entire 12% holding of 12,000 E21 ordinary Shares in Reward Lid, an usquoted trading company, to his son, The market vale of the shares on that date was £98,400. The shares had been purchased on 15 March 2012 for £39,000, On 24 June 2022, the market value of Reward Ltd’s chargeable assets was £540,000, of which £460,000 was in respect of chargeable business assets, Jerome end his son have elected to bold over the guin on this gift of a business asset. 104 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 152 152 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 3 CHARGEABLE GAINS QUESTIONS : SECTION 2 On ? November 2022, Jerome mace a gift of an antique bracelet valued at £12,200 to his granddaughter. The antique bracelet had been purchased an 1 September 2007 far £2,100. 4 On 29 January 2023, Jerome brother. He had originally £37,800. The market value £33,600. The land has never made a gift of purchased ten of the unsold been used for nine acres of land valued at £78,900 to his acres of land on 3 Novernber 2012 for acre of land as at 29 January 2023 was business purposes. Required: {3} Calculate Jerome’s chargeable gains for the tax year 2022/23. Note: You should ignore inheritance tax. {b} (7 marks) For each of the four recipients of assets 1 to 4 gifted from Jerome, state their respective base cost for capital gains tax purposes, (3 marks) (Total: 10 marks} 184 GINGER AND NIGEL (ADAPTED) @ Watk in the footsteps of a tap tutor You should assume that today’s date & 1 March 2023. (a) This scenario relates to one requirement. Ginger has @ holding of 10,000 £1 ordinary shares in Nutmeg Utd, an unquoted trading company, which she had purchased on 13 February 2013 for £2.39 per share. The current value of the shares as agreed with HM Revenue and Customs is £6.49 per share, but Ginger intends to sell some of the holding to her daughter at £4.00 per share during March 2023. Ginger and her daughter will elect to hold over any gain as a gift of a business asset. For the tax year 2022/23, Ginger will not make any other disposals, and has therefore not utilised her annual exempt amount, Required: Explain how many £1 ordinary shares In Nutmeg Lid Ginger can sell to her daughter for £4,00 per share during March 2023 without incurring any capital gains tax liability for the tax year 2022/23. Be Your answer should be supported by appropriate calculations. {b} (4 marks) Thisscenarlo relates to one requirement. innocent and Nigel, a married couple, both have shareholdings in Cinnamon Lid, an wnquoted trading cornpany with a share capital of 100,000 £1 ordinary shares, Innocent has been the managing director of Cinnamon Ltd since the company’s incorporation on 1 July 2013, and she currently holds 20,000 shares (with matching voting rights) in the company. These shares were subscribed for on 1 July 2013 at their par value. Nigel has never been an employee or a director of Cinnamon Ltd, and he currently holds 3,000 shares (with matching voting rights) in the company. These shares were purchased fram an existing shareholcer on 23 April 2017 for £46,200. KAPLAN PUBLISHING 1058 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 153 153 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION ({F42022) Either Innocent or Nigel will sell 2,000 of their shares In Clanamon Ltd during March 2023 for £65,000, but they are not sure which of them shauld make the disposal. For the tax year 2022/23, both innocent and Nige! have already made disposals which will fully utilise their annual exempt amounts, and they will each have taxable income of £80,000. Required: Calculate the capital gains tax saving if the disposal of 2,000 shares in Cinnamon Ltd during March 2023 is made by Innocent rather than Nigel. Hi (6 marks) (Total: LO marks) 185 MICK STONE (ADAPTED) ee Walk in the footsteps of a top tutor This scenario relates to two requirements. Nick Stone disposed of the following assets during the tax year 2022/23: 1 On 19 May 2022, Mick sold a freehold warehouse for £522,000. The warehouse was purchased on 6 August 2009 for £258,000. In January 2015, the floor of the warehouse was damaged by flooding and had to be replaced at a cost of £63,000, The warehouse was sold because it was surplus to the business's requirements a5 a result of Mick purchasing 3 newly built warehouse during 2022. Both warchouses have always been used for business purposes in a wholesale business run by Mick as 4 sol trader. 2 On 24 September 2022, Mick sold 700,000 £1 ordinary shares in Rolfing Ltd, an unquoted trading company, for £3,675,000, He had originally purchased 500,000 shares ™ Rolling Ltd on 2 June 2013 for £960,000. On 1 December 2018, Rolling Lid made 4 3 for 2 bonus issue. Mick has been a director of Rolling Ltd since 1 January 2013. Required: (a) Assuming that no reliefs are avaSable, calculate the chargeable gain arising from gach of Mick Stone's asset disposals during the tax year 2022/23. 2 You are not required to calculate the taxable gains or the amount of tax payable. (4 marks) (b) State which capital gains tax reliefs might be available to Mick Stone in respect of each of his disposals during the tax year 2022/23, and what further information you would require in order to establish if the roliafs are actually available and to astablish any restrictions as regards the amount of relief. BR For this part of the question you are not expected to perform any calculations. (6 marks) (Total: 10 marks) 106 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 154 154 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 186 RUBY (ADAPTED) fet Walk in the footsteps of a top tutor You should assume that today’s date is 1 March 2023. {2) Thisscenario relates to one requirement. On 27 August 2022, Ruby disposed of a residential Investment property, and this resulted in a chargeable gain of £47,800, At the point of the disposal, Ruby had not made any other disposals and expected to have o remaining basic rate band of £14,185 for the tax year 2022/23. Required: Calculate Ruby's capital gains tax liability in respect of the above disposal and state when the tax will be paid. (2 marks) (b} This scenario relates to one requirement. in addition to the disposal already made on 27 August 2022, Ruby is going to make one further disposal curing the tax year 2022/23, This disposal will be of either Ruby's holding of £1 ordinary shares in Pola Ltd, or her holding of Op ordinary shares in Aple ple. Shareholding in Pola Ltd Pola Ltd is an unquoted trading company, in which Ruby has a 10% shareholding. The shareholding was purchased on 14 July 2013 and could be sold at a gain of £37,300, Ruby has been an employee of Pola Ltd since 2011, Shareholding in Aplo pic Aplo pic is a quoted trading company, in which Ruby has 3 shareholding of 40,000 SOp ordinary shares. Ruby received the shareholding as 2 gift from her father on 27 May 2016. On that date, the shares were quoted on the stock exchange at£2.12-£2.24. Ine shareholding could be sold for £59,000, No capital gains tax reliefs are available in respect of this disposal. Required: Calculate Ruby’s final capital gains tax payable or repayable for the tax year 2022/23 if, during March 2023, she also disposes of either (1) her shareholding in Pola Ltd, or alternatively (2) her shareholding in Aplo pic, #8 Note ~ the following mark allocation is provided as guidance for this requirement: Pola Ltd (4.5 marks) Aplo pic {3-5 marks) (8 marks) (Total: 10 marks} KAPLAN PUBLISHING 107 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 155 155 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK= TAXATION (FA2022) 187 DALIEET ‘a Wolk in the footsteps of a top tutor This scenario relates to two requirements. Please assume today's date is 5 April 2022. Daljeet wishes to sell personal assets to generate funds to pay his daughter's university fees and he has selected two assets that he is willing to sell. He will sell one of the assets to a third party on 31 December 2022 and will make his decision based on the asset that will generate the highest amount of net proceeds. The assets Daljeet has identified as potential disposals are as follows: 1,000 shares in ABC Ltd Daljeet acquired 1,000 shares in ABC Ltd, a trading compeny, on 7 June 2017 ‘or £60,000 when he became an employee of the company. On 7 June 2018 ABC Ltd underwent a rights tssue, offering shareholders the opportunity to purchase 2 shares for every 5 shares already held for £50 per share. Daljeet purchased the maximum amount of shares. ABC Ltd has 20,000 shares in issue, if Daljeet sells the ABC Ltd shares, he will sel 1,000 shares worth £100,500 on 32 Decernber 2022. Holiday cottage The cottage Is currently worth £110,009 and legal fees in respect of the disposal are expected to be £1,000. Repairs costing £3,500 were made to the cottage roof in December 2020 following darnage caused by 3 storm, Daljeet originally bought the cottage in May 2013 at a cost of £64,700. it has always been let out and Daljeet has never occupied the property as his private residence, Other Information ODaljeet will be a higher 2022/23 rate taxpayer and will make no other disposals in the tax year Required: {a) Calculate which of the above asset disposals will result In the highest amount of proceeds, after deducting tax and any costs of sale. 4 You should assume that Daljeet will claim any relevant reliefs where possible and has not previously daimed any capital gains tax reliefs. (b) (8 marks) Briefly explain why the disposal of cither the ABC Ltd shares or the holiday cottage will not be subject to inheritance tax. EI (2 marks) {Total: 10 marks) 108 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 156 156 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CHARGEABLE GAINS QUESTIONS : SECTION 2 COMPANIES — CHARGEABLE GAINS 188 FOGO LTD AND NETTA LTD This scenario relates to four requirements. Fogo Ltd has ong 100% subsidiary, Netta Ltd, Fogo Ltd During the year ended 30 September 2022, Fogo Ltd made the following capital disposals: On 31 October 2021, Fogo Ltd sold an investment property which had been let out to tenants Since it wes acquired, The investment property was sold to an unconnected company for £625,000. !t had cost £500,000 when it.was acquired in February 2010. On 4 May 2022, Fogo Ltd sold a freehold warehouse which It had used exclusively In its trade. The warehouse was sold to an unconnected company for £560,000. it had cost Fogo Ltd £100,000 when it was acquired in September 2001, On 19 September 2022, Fogo itd sold e 4% sharchotding nan unconnected trading company, resulting in a capital loss of £25,000. Indexation factors: September 2001 to December 2017 0.593 February 2010 to December 2017 0.269 Netta Lid For the year ended 30 September 2022, Nette Ltd has a draft tax adjusted trading profit of £180,000. This figure has been calculated correctly but does not Include interest payable or receivable, Interest payable On 1 October 2021, Netta Ltd borrowed £3,000,000 from a bank at an annual interest rate of 5%. During the year ended 30 September 2022, the interest payable of £50,000 was in respect of the following: 1 Interest on £550,000 of the Joan to. acquire fixed plant and machinery for use in its factory. The fixed plant and machinery has an expected useful life of 15 years. 2 Interest on £450,000 of the loan to acquire a 3% shareholding in a trading company called Jone Ltd. interest receivable Netta Ltd's financial statements for the year ended 30 September 2022 showed Interest receivable from investments of £35,000, of which £25,000 was received durirg the year and £10,000 was accrued on 30 September 2022, There was no accrual brought forward at 1 October 2021. Required: {a} Calculate the net chargeable gainz of Fogo Ltd, before any dai relief, for the year ended 30 September 2022. KAPLAN PUBLISHING for group rollover {5 marks} 105 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 157 157 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> (b) TAXATION ({F42022) In respect of the disposal by Fogo Ltd of Its freehold warehouse on 4 May 2022: (i} Give TWO reasons why Fogo Ltd can make a group rollover relief claim and explain which of Netta Ltd’s asset acquisitions will qualify and which will not qualify as a replacement asset. (4 marks) (i) = Caleulate the amount of the gain which can be deferred if a claim for group rollover relief is made chargeable. (c) and explain when the deferred gain will become {3 marks) Calculate the taxable total profits of Netta Ltd for the year ended 30 September 2022. Note: Your calculation should commence with the draft tax adjusted trading profit of £180,000 clearly adjusting for the trading interest payable and shawing the total non-trade loan relationship Income. {3 marks) (Total: 15 marks) 189 LUNALTD ‘et Walk in the footsteps ofa top tutor This scenario relates to two requirements. Luna Ltd had the following transactions in shares during the year ended 31 March 2023: 1 On 25 November 2022, Luna Ltd sold its entire shareholding of £1 ordinary shares in Pluto pic for £53,460, Luna Ltd had originally purchased 16,000 shares in Pluto pic on 14 June 2011 for £36,800. On 22 May 2013, Luna Ltd sold 10,000 of the shares for £46,200. Assure the indexation factors are as follows: 2 June 2011 to May 2013 0.063 May 2013 to December 2017 0112 On 12 February 2023, Luna Ltd's shareholding in Asteroid ple was taken over by Cornet pic. Luna itd had originally purchased 10,009 £1 ordinary shares in Asteroid ple, and their indexed cost on 12 February 2023 was £33,000. Under the terms of the takeover, for each of its £1 ordinary shares in Asteroid pic, Luna Ltd received £6.50 in cash plus one El ordinary share in Comet ple. Immediately after the takeover, Comet pic's €1 ordinary shares were quoted at £4.50, Required: (a) Explain how the indexation allowance can be used when 8 cormpany makes a capital loss, or where the indexation allowance ts greater than a company’s unindexed gain. a {2 marks) (b) Calculate the chargeable gain arising fromm each of Luna Ltd’s transactions in shares during the year ended 31 March 2023. When calculating the chargeable gain arising from the disposal of the shareholding in Pluto ple, you should show full workings for the share pool. (8 marks) (Total: 10 marks) 110 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 158 158 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 Section 3 PRACTICE INHERITANCE TAX QUESTIONS id Tetorial note You should expect inheritance tox to be tested in both sections A and B. The 10 mark question in Section C could also test inheritance tay topics. There is however no set nvinimum or maximum sumber of marks for nhertonce tax, PRACTICE SECTION A OBJECTIVE TEST QUESTIONS 190 Mario mace a number of gifts during the tax year 2022/23: For each of the following gifts select whether they are exempt or not exempt transfers for inheritance tax purposes. | Exempt Nat exempt On 7 May 2022 he gave 100,000 shares in Lahm itd to his wife, The shares have been valued at that date at £500,000 | On 10 August 2022 he gave 50,000 shares in Hummes Utd to a discretionary trust, The shares have been valued at that date at £75,000 On 6 October 2022 he gave £2,000 to his soy on the occasion of his marriage On 9 February 2023 he gave £300 to his | daughter KAPLAN PUBLISHING iii https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 159 159 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK: TAKATION (FA2022) September 2016 OT question Cora made 2 cash gift of £300,000 to her niece on 30 April 2017. She then mada 2a cash giftof £500,000 to her nephew on 31 May 2018, Both of these amounts are stated after deducting available exemptions. Cora subsequently died on 31 October 2022. The nil rate band for the tax years 2017/18 ancl 2018/19 was £325,000. What amount of inheritance tax was payable as a result of Cora’s death In respect of the cash gift of £500,000 to her nephew? A = £190,000 B £110,000 c £114,000 0 192 = £76,000 Christiano made the following lifetine gifts, and agreed to pay any inheritance tax that arose as a result of the second gift. 1 A gift into 2 discretionary trust on 18 February 2021 — the gross chargeable transfer was £274,000 2 A cash gift of £150,000 into a discretionary trust on 20 May 2022 The ail rate band for the tax year 2020/21 was £325,000. How much lifetime tax is paid by Christiano in respect of the gift on 20 May 20227 £ 193 September 2016 OT question On 1 July 2021, Sameer made a cash gift of £2,500 to his sister. On 1 May 2022, he made a cash gift of £2,000 to a friend, On 1 June 2022, he made 3 cash gift of £50,000 to » trust. Sameer hac not made any other lifetime gifts. In respect of Sameer’s cash gift of £50,000 to the trust, what is the lifetime transfer of value for inheritance tax purposes after taking account of all available exemptions? 112 A E4B,500. 6 £44,000 C £46,000 O £46,500 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 160 160 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INHERITANCE TAX QUESTIONS 194 : SECTION 3 Amir died on i February 2023, During his lifetime, he made two gifts: i On 30 November 2015 he gave £200,000 to his son 2 On 15 June 2016 he gave £350,000 to his daughter Select the correct chargeable amount of the above gifts (i.e. value before the deduction of the nil rate band} which becomes chargeable as a result of Amir’s death. Chargeable amount € i 30 November 2015 2 15 June 2016 Chargeable amount options: 0 194,000 347,000 344,000 195 September 2015 OT question Heng is @ wealthy 45 year old who would like to reduce the potential inheritance tax liability on her estate when she dies_ Which of the following actions will NOT achieve Heng’s aim of reducing the potential inheritance tax Rability on her estate when she dies? A Changing the terms of her will so that the residue of her estate goes to her grandchildren rather than her children 8 Making lifetime gifts to trusts up to the value of the nil rate band every seven years Changing the terms of her will so that the residue of her estete goes to her husband rather than her children 0 196 Making lifetime gifts to her grandchildren early In life June 2020 OF question Oliver got married on S October 2022 and Ofver’s mother and father each gave him £25,000 as a wedding present. Oliver’s parents have not made any previous gifts for the purposes of inheritance tax {IHT). For the purposes of IHT, what is the total amount of exemptions that can be deducted from the gifts made to Ollver? A £17,000 B £10,000 Cc £11,000 0 £22,000 KAPLAN PUBLISHING 113 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 161 161 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK> TAXATION 197 (FA2022) Edin died on 16 July 2022. He made one lifetime gift on 10 November 2017 Into a Giscrationary trust. He paid the lifetime tax of £52,250 and the grass chargeable transfer value of the gift was £586,250, > £10,450 o How much inheritance tax ts dua on the lifetime gift as a result of Edin's death? £62,700 on £52,250 198 £104,500 Fabrice died on 20 January 2023. During his lifetime he made the following gifts: 1 20 February 2012 £300,000 tc his son 2 22 March 2015 £400,000 to a discretionary trust 3 30 Seprember 2021 half share in his malin residence, worth £250,000 to Als daughter 4 24 December 2022 £800,000 to his wife Select the gift{s) on which inheritance tax will be payable as a result of Fabrice’s death. Inheritance tex payable | 20 February 2012 | 22 March 2015 30 September 2021 24 December 2022 September 2015 OT question Benjamin died on 30 November 2022 leaving an estate valued at £890,000. inheritance tax of £252,000 was peid in respect of the estate. Under the terms of his will, Benjamin left £260,000 to his wife, a specific legacy of £120,000 {free of tax) to his trother, and the residue of the estate to his grandchildren, What is the amount of Inheritance received by Benjamin's grandchildren? A £638,000 8 £510,000 C = £378,000 D = £258,000 i114 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 162 162 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 200 INHERITANCE TAX QUESTIONS : SECTION 3 June 2015 OT question (ADAPTED) Which TWO of the following are NOT deducted when calculating the value of a person’s >} An outstanding repayment mortgage fF chargeable estate for inheritance tax purposes? Funeral expenses OO An outstanding interest-only mortgage An outstanding gambling debt owed to afriend 7m Averbal promise to paya friend's debt 201 Credit card debts Fred died on 8 July 2022. His estate consisted of the following assets; i & house worth £545,000 on which there is an outstanding interest-only mortgage of £145,000, and 2 A life insurance policy with a market value of £300,000, but the proceeds paid to the executors from the policy were £350,000, Under the terms of Fred's will £400,000 was left to his wife with the remainder of his estate to his son. What is Fred’s chargeable estate for inheritance tax purposes? £ 202 Oecember 2016 OT question Gita died on 17 May 2022. At the date of her death she owned the following assets: £ House Chattels and cash Shares held in an Individual savings account {ISA} 390,000 70,000 60,000 Atthe date of ber death, Gita owed income tax of £25,000 in respect of the tax year 2021/22. Gita left £100,000 of her estate to her husband, with the rernainder of the estate left to her daughter. What is Gita’s chargeable estate for inheritance tan purposes? A £335,000 B £395,000 c £495,000 BD =. £420,000 KAPLAN PUBLISHING 115 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 163 163 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAKATION {FA2022) 203 Joal died on 20 December 2022, and left an estate worth £1,176,000 to his daughter, Joel's main residence, valued at £300,000, was induded in the total value of the estate, Joel did not make any Bfetime gifts. How much inheritance tax is payable on Joel's death estate? £ 204 Dominic owned 7,500 shares in Halder Ltd. On 1 July 2022 he gave 3,000 shares to his son. The campary has an issued share capital of 10,000 shares. The values of different shareholdings in the shares on 1 July 2022 are as follows: Holding Up to 25% Value per share £5 26% to 50% £8 51% to 74% 75% or more £13 £20 What is the transfer of value for inheritance tax purposes on the gift of the shares to his son? £ 205 On 15 September 2018 ENis transferred £500,000 Into a discretionary trust. On 15 September 2022 Elvis died. Select the tax payable date for both the lifetime inheritance tax and any additional inheritance tax payable on death due in respect of the chargeable lifetime transfer. 206 Lifetime tax 15March 2019 34 March2019 30 April2019 Additional tax on death 15 March 2023 31March 2023 30 April 2023 Malin died on 6 March 2023 leaving an estate worth £2,000,000. His estate included a holiday home in the UK worth £400,000 which he left to his sister. He left the rest of his estate to his daughter and appointed a friend to act as executor. For each of the following individuals, select whether they will pay the inheritance tax due on the estote, suffer the inheritance tax payable on the estate, or neither. it is possible to select more than one individual for the same answer. Pays tax Suffers tax Neither pays nor suffers tax | Sister "Daughter | Executor 116 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 164 164 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INHERITANCE TAX QUESTIONS : SECTION 8 267 ‘For each of the following statements select whether It is true or fake: True False An advantage of giving an appreciating asset away during lifetime is that the increase in value up to the date of death will not be subject to inheritance tex For cpital gains tox purposes lifetime gifts arc toxable but Gifts On death are not On a iifetime gift made more than three years before death, taper relie will reduce the amount of the gift chargeable to inheritance tax on death 288 March/June 202] OT question Ken died on 15 January 2023 leaving a chargeable estate valued at £245,000, He had made grass chargeable lifetime transfers of £98,000 in October 2015 and £118,000 in dune 2019. How much inheritance tax (IHT) is payable in respect of Ken’s chargeable estate of £245,000? £ ‘209 June 2019 OT question Sandeep made a gift of £425,000 to a trust on LO November 2022, No agreement hes been made about who will pay the inheritance tax in respect of the gift. What is the due date for payment of the inheritance tax and who is primarily liable for its payment? on 2 The trustees are liable to make the payment by 32 May 2023 The trustees are liable to make the payment by 30 April 2023 Sandeep is liable to make the payment by 31 May 2023 Sandeep is liable to make the payment by 30 April 2023: KAPLAN PUBLISHING ii? https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 165 165 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK; TAXATION (FA2022) PRACTICE SECTION B OBJECTIVE TEST CASES 210 LEBNA AND LULU (ADAPTED) You should assume that today’s date js 1 March 2023. Lebna and Luly werea married couple, but, unfortunately, Luly dled on 24 January 2018. Lulu Lubu left an estate valued at £210,000 for inheritance tax {IHT}) purposes. The estate did not include a main residence. Under the terms of her will, Lulu left a specific legacy of £40,000 to her brother, with the residue of the estate to her husband, Lebna. Lulu had made the following lifetime transfers: Date Type of transfer Amount £ 13 February 2010 21 June 2016 Chargeable lifetime transfer Potentially exempt transfer 50,000 80,000 Both of these transfers are after taking account of all available exemptions. The nil rate band for the tax year 2017/28 is £325,000. Lebna’s chargeable estate Lebna has a chargeable estate valued at £980,000. His estate indudes a main residence valved at £340,000 on which there is an outstanding interest-only mortgage of £152,000, Under the terms of bis will, Lebna has left his entire estate to his son. Gift to son on 22 February 2018 On 22 February 2018 Lebna made a gift of 60,000 £1 ordinary shares in Blean Ltd, an unquoted investment company, to his son, Before the transfer, Lebna owned all of Blean Ltd's share capital of 100,000 ordinary shares. The market value of Blean Ltd's ordinary shares on 22 February 2018 was as follows: Holding 40% Market value per share £4.20 HO% £5.30 100% £7.10 Lebna had not made any previous lifetime gifts. Gifts to friends during October 2022 Lebna made cash gifts of E85, £225, £190 and £490 to various friends during October 2022. The gifts of £85 and £190 were to the same friend. 1 118 if Lebna were to die today, 1. March 2023, how much of Luly’s nil rate band will the’ personal representatives of Lebna’s estate be able to claim when calculating the 1HT payable on his chargeable estate? A £355,000 B £205,000 c £35,000 DB £285,000 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 166 166 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 2 INHERITANCE TAX QUESTIONS : SECTION 3 if Lebra were to die today, 1 March 2023, what is the total amount of residence nil rate band which will be available when calculating the IHT payable on his chargeable estare? 3 A £175,000 8 £350,000 € £340,000 D £188,000 What is the ammount of the potentially exempt transfer which Lebna has made to his son on 22 February 2018 (the gift of 60,000 shares in Blean Ltd) after deducting any available exemptions? A £542,000 8 £536,000 C £372,000 D £378,000 4 =f Lebna were to die today, 1 March 2023, what taper relief percentage reduction would be available when calculsting the tHT payable on the potentially exempt transfer which he made to his son on 22 February 2018 (the gift of 60,000 shares in Glean Ltd), and when would this HHT be due? 5 Taper relief reduction Due date A 60% 30 September 2023 B 60% 1 September 2023 C 40% 1 September 2023 DB 40% 30 September 2023 Whet emount of the cash gifts made by Lebna to his friends during October 2022 covered by the small gifts exemption? A £500 B £990 C £225 D £275 KAPLAN PUBLISHING 119 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 167 167 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> 211 TAXATION (F42022) TOM (ADAPTED) fe? Walk in the footsteps af o top tutor Tor died on 1 May 2022. He hod made a gif with a chargeable amaunt of £450,000 (after all available exemptions) to a trust on 20 February 2016. Tom paid the inheritance tax arising on the gift. This was Tom’s only gift. Tom's estate at the date of death included the following assets as well as some cash in the bank: 1 ASO% share, valued at £150,000, in a successful racehorse 2 Cash winnings from betting on horse racing of £40,000 3 His. main reskience valued at £875,000 which has an outstanding repayment mortgage of £500,000. The executors have determined that Tom's chargeable estate for IHT purposes was £2,000,000 and they filed their account of the estate assets with HM Revenue and Customs on 3 January 2023. Torn left all of his estate to Als children. His wife is stih alive. The nil rate band for the tax -year 2015/26 was £325,000. 1 Whet was the GROSS chargeable amount, for the purpose of calculating any additional tax as o result of Tom’s death, in respect of Tom's gift of £450,000 to the trust on 20 February 2016? £475,000 B £450,000 C = £481,250 BD 2 £473,750 Hf Tom had also made cash gifts of £5,500 to his daughter and £400 to his granddaughter on 20 December 2014 what would have been the amount of annual exemption available on the gift into the trust on 20 February 20167 3 In respect of the gift to the trust on 20 February 2026, what rate of taper relief is epplied to the IKT payable on Tom's death and who & fiable to pay this additional IHT arising on death? Select the appropriate box in the table below. Liability for tax Taper relief 120 Trustees Executors 20% A 8 80% Cc D |}——---— KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 168 168 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 4 INHERITANCE TAX QUESTIONS : SECTION 3 What is the net value of the estate assets 1 ~ 3 that will be Included im Tom's chargeable death estate for IHT purposes? Net value 1 50% share in a racehorse 2 Cash winnings £150,000 £225,000 £375,000 £725,000 £875,000 How much IMT is payable on Tom's death estate? 212 A £600,000 8 Cc b £670,000 £730,000 £800,000 AFIYA (ADAPTED) ref Walk in the footsteps of a top tutor ‘ie Answer debrief Adiya died on 29 Novernber 2022. She had made a number of gifts during ner lifetime as follows: 1 Afiya's first gift wes made on 14 September 2017, when she gave 6,590 £1 orcinary shares In Cassava Ltd, an unquoted Investment company, to her daughter. Before the transfer Aflya owned 8,000 shares out of Cassava Ltd's issued share capital of 10,090 £1 ordinary shares. On 14 September 2017, Cassava i td's shares were worth £3 each for a holding of 15%, £7 each for a ho'ding of 65%, and £2 each for > holding of RO% Aflya then made various other gifts sucn that as at 26 January 2022 the total gross chargeable value of all transfers made in the prewous seven years was £220,000 comprising potentially exempt transfers of £100,000 and chargeable lifetime transfers of £120,000. On 27 January 2022, Aflya made a transfer of value (after all exemptions) of £403,000 to 5 trust. Afiya paid the inheritance tax arising from this gift. KAPLAN PUBLISHING 121 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 169 169 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) Afiya’s husband had died on 1 Jume 2008 leaving an estate valued at £200,000. He left £46,800 to his daughter and the balance to Afiya. He had never made any gifts during ifetime. On her death Aftya left an estate valued at £525,000, including her matin residence worth £375,000, to her chitdren, The nil rate band for the tax year 2008/09 Is £312,000 and it Is £325,000 thereafter. a What is the gross chargeable transfer value (after all exemptions) of Afiya’s gift to her daugitter on 14 September 20177 A £59,500 A £39,500 C £53,500 Bb £45,500 How much |Hetime tHT is payable an the gift to the trust on 27 January 2022? Whkh FOUR of the following items will be included in, or deducted from, Aflya’s chargeable death estate for inheritance tax purposes? DP A Her main residence Funeral expenses ODO Annual exemption Shares held in an Individual Savings Account "Mm £10,000 held In Gilts £500 owed to a friend through a verbal agreement @> £265,200 £276,250 Oo £440,200 9 What is the total ammount of nil rate band{s} that Afiya could claim in respect of unused nil rate band{s) on the death of her husband? £451,250 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 170 170 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 5 INHERITANCE TAX QUESTIONS : SECTION 3 For both the lifetime inheritance tax on the gift to the trust on 27 January 2022 and the tax arising on Afiya’s estate select the due date of payment from the following list. Dates Ufetime tax on gift to trust Tax on estate 30 April 2022 | 27 July 2022 31 July 2022 39 April 2023 29 May 2023 31 May 2023 213 ROMAN (ADAPTED) G Walk in the footsteps of a top tutor Roman died on 7 August 2022, and his wife Paris died on 18 February 2023, The couple had attempted to mitigate their inheritance tax (IHT) liabilities when they bath made substantal gifts during 2020. These gifts made full use of their respective nil rate bands of £325,000, but unfortunately neither Romen nor Paris then survived long enough for any of the gifts to bencfit from taper relief, Neither Roman nor Paris 1ad made any previous lifetime gifts or owned a main residence. Roman On 4 March 2020, Roman made a cash gift of £210,000 to his daughter, On. 26 August 2020, he made a cash eft of £190,000 to a trust. No lifetime INT arose in respect of the gift to the trust. Roman’s estate for HT purposes was valued at £560,000. Under the terms of his will, Roman left £300,000 to Paris (his wife) and the residue of his estate to his daughter. Parts On 12 December 2020, Paris meade a gift of 75,000 £1 ordinary snares in Capital itd, an unqvoted investment company, to her son. Before the transfer, Parts owned 100,000 of Capital Ltd's 250,000 ordinary shares, The market value of Capital Lte’s ordinary shares on 12 December 2020 was as follows: Holding Market value per sharo 10% £s& 30% 40% £6 £8 Paris also made cash gifts of £80, £210, £195 and £460 to various friends during febeuary 2021, The gifts of £80 and £195 were to the same friend Paris's estate forIHT purposes was valued at £840,000, including the inheritance from Roman {her husband). Under the terms of her will, Paris left.a soecific legacy of £20,000 to 2 friend and the residue of her estate to her grandchikdren. KAPLAN PUBLISHING 123 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 171 171 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION i (FA2022) How much |HT will be payable in respect of the gift made to the trust by Roman as a result of his death? A B C DB £26,400 £28,800 £27,600 £25,200 Who will be responsible for paying the FHT arising from Rornan's gift to the trust as aresult of his death, and when will the tax be due? Select the appropriate box In the table below. Liability for tax Due date Trustees Perronal representatives of Raman’s estate 23 February 2023 A 8 20 Aprit 2023 c 5 For IMT purposes, what was the amount of the transfer of value as a result of Paris's gift of 75,000 ordinary sharesIn Capital Ltd? A B C D «£450,000 £600,000 £675,000 £425,000 What {s the amount of the cash gifts made by Paris to her friends during February 2021 NOT covered by the small gifts exemption? What is the amount of IHT payable in respect of Roman’s and Paris's estates on death? Tick the appropriate boxes. Roman's estate Paris’s estate £104,000 iNT £224,000 payable £328,000 £336,000 124 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 172 172 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 214 ADANA (ADAPTED) re INHERITANCE TAX QUESTIONS : SECTION 3 Walk in the footsteps of a top tutor Adana died on 17 March 2023, and inheritance tax (/HT) of £566,000 is payable in respect of her chargeable estate. Under the tenms of her will, Adana left her entire estate, which does not include a main residence, to her chcren. At the date of hey death, Adana had the following debts and labilities: i An outstanding interest-only mortgage of £220,000, 2 Inconve tax of £43,700 cayable in respect of the tax year 2022/23. 3 Legat fees of £4,600 incurred by Adana’s sister which Adana had verbally promised to psy. Adana’s husband had died on 28 May 2007, and only 20% of his inheritance tax nil rate band was used on his death. The nil rate band for the tax year 2007/08 was £300,000, On 22 April 2011, Adana had made » chargeable lifetime transfer of shares valued at £506,000 to a trust. Adana paid the lifetime IHT of £52,250 arising from this gift. If Adana had not made this gift, har chargeab'e estate at the time of her death would have been £659,000 higher than it otherwise was. This was because of the subsequent increase in the value of the gifted shares. 1 2 What is the maximum nil rate band which will have been available when catculating the INT of £565,000 payable in respect of Adana’s chargeable estate? A £325,000 B € D £565,000 £390,000 £585,000 What is the amount of liabilitics 1 — 3 which will be deducted in calculating Adane’s chargeable estate for IHT purposes? Deductible 1 interest-only mortgage 2 Income tax payable — 3 Sister's legal fees Potential answers £0 £4,600 £43,700 £220,000 KAPLAN PUBLISHING 125 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 173 173 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) Sefect who will be responsible for paying the IHT of E566,000 In respect of Adana’s chargeeble estate, and the due date for the payment of this liability. Tax payable Payable by; B0 September 2023 17 September 202% 17 March 2024 Beneficiaries {her children) A 8 C Personal representatives D E F How much of the FHT payable in respect of Adana’s estate would have been saved if, under the terms of her will, Adana had made specific gifts of £400,000 to a trust and £200,000 to her grandchildren, instead of leaving her entire estate to her children? A £240,000 8 £160,000 c £0 B £80,000 How much IHT did Adana save by making the chargeable lifetime transfer of £500,000 to a trust on 22 April 2011, rather than retaining the gifted Investments until her death? £ KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 174 174 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INHERITANCE TAX QUESTIONS : SECTION 3 PRACTICE SECTION C CONSTRUCTED RESPONSE QUESTIONS 215 BLU (ADAPTED) (a) we Walk in the footsteps of a top tutor This scenario relates to two requirements. Red Perry died on 6 November 2022, at which point his estate was valued at £800,000. The estate included a maim residence valued at £390,009, Red's wife had died on 11 May 2017, leaving her entire estate to Red. She made no gifts during her lifetime. Red Ieft his estate to his brother, Sonny. Red's only lifetime gift was a gift to his son of £211,000 {after exemptions) in January 2020. The nif rate band for the tax years 2017/18 and 2019/20 was £325,000. Required: 1 Calculate the Inheritance tax payable in respect of Red’s estate, H 2 Explain how your answer would be different if, instead of leaving the estate to his brother, Red left his estate to his son, You are not required to do calculations for requirement (a) 2. (b} (4 marks) This scenario relates to one requirement. On 15 January 2023 Blu Reddy mace a gift of 200,000 £1 ordinary shares in Purple Ltd, an unquoted investment company, to a trust Blu paid the inheritance tax arising from this gift. Before the transfer Blu owned 300,000 shares out of Purple Ltd's issued share capital of 500,000 £1 ordinary sheres, On 1S January 2023 Purple Ltd's shares were worth £2 each for a holding of 20%, £3 each for a hokding of 40%, and £4 each for 2 holding of 60%. Blu has not made any previous gifts. Required: Calculate the Inheritance tax that will be payable as a result of Blu Reddy's gift to the trust, and the additional inheritance tax that would be payable if Blu were to die on 31 May 2027. You should ignore annual exemptions, and should assure that the nil rate band remains unchanged from that for the tax year 2022/23. (6 marks) (Fotal: 10 marks) KAPLAN PUBLISHING 127 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 175 175 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {F42022) 216 JACK AND TOM (ADAPTED) ee Walk in the footsteps ofo top tutor {a} This scenario retates to one requirement, On 3 October 2022 Jack Monkton sold his entire holding of shares in Corinthian Ltd, an unquoted trading company, for £152,107. He had subscribed for the shares and paid in full in-cash on 23 May 2019 for €13,119. Jack has never worked tor Corinthisn Ltd and has made no other gains during the tax year 2022/23 but has a capital toss of £1,572 from a less successful investment in Burn Ltd. Required: Explain why the disposal of the shares in Corinthian Ltd qualifies for investors’ relief and calculate Jack’s capital gains tax lability for the tax year 2022/23. a {$ marks) (b) This scenario relates to three requirements. Tom Tirith made a cash gift of £200,000 to his daughter on 20 December 2071. He is now going to make a cash gift of £450,000 to a trust on 20 February 2023. The ni rate band for the tax year 2021/22 Is £325,000. Required: 1 Calculate the lifetine inheritance tax that will be payable in respect of Tom Tirith’s gift of £450,000 to a trust if: 38 1 2 the trust pays the tax arbing from the gift, or Tom pays the tax arising from the gift, and in the case of2 only state the walue of the gross chargeable transfer, The total marks will be split equalty between each part. 2 (3 marks) Explain how your answer would be different if, instead of making a cash gift to his daughter on 20 December 2021, Tom made the seme gift to 5 trust. o You are not required to do calculations for requirement (b) 2. {2 marks) {Total: 10 marks) 128 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 176 176 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INHERITANCE TAX QUESTIONS : SECTION 3 217 AURORA (ADAPTED) fest Wolk in the footsteps of a top tutor This scenario relates to two requirements, You should assume that today’s date is 6 April 2022. You area trainee Chartered Certified Accountant dealing with the tax affairs of Aurore. Let properties Aurora owns three freehold residential properties which are all jet out. Properties 1 and 3 qualify for private residence relief (PRR) because, al separate times, they were previously occupied by Aurora immediately after purchasing each one, These two properties also have outstanding interest-only mortgages. Details are as follerars- Property1 Property2 Property Current value Outstanding interest-only mortgage Chargeable gain if sold (before any resets) £ 350,000 (115,000) 190,000 £ 350,000 0 150,000 E 350,000 (115,000) 150,000 Period of ownership 15 years 15 years 20 years 2 years 0 years 12 years Period lived in as private residence throughout ownership period Af three properties have been let out during any periods when not occupied by Aurora as her private residence. None of the properties were let as furnished holiday accommodation. Inheritance tax On 23 August 2016, Aurora made a gift of a house valued at £416,000 to her nephew. Phil, This was 2 wedding gift when Phil got married. Aurora’s only other asset is her current main residence valued at £500,000. This property does not have a mortgage. Under the terms of her will, Aurora's ertire estate is feft to her children Aurore’s husband, Andrew, died on 15 August 2020, with all of his estate left to Aurora. During February 2020, Aurora and Andrew both made lifetime gifts of assets to thelr children which fully utlised their respective inhertance tax (!HT] mil rate bands of £325,000, Sale of one of the three let properties Aurore is planning to sell one of her three let properties during May 2022, and wants to sell the one which will result in the lowest chargeable gain after taking into account any available reliefs. Her rough calculations indicate that this will be property 3 Required: (a) Calculate the |HT payable in respect of Aurora’s death if she were to die on 6 April 7022, (7 marks) {b) Assuming Aurora does not die on G April 2022, for each one of her three Iet properties, calculate the chargeable gain (after taking account of any available reliefs, but before deducting the annual exempt amount) if she sells that property during May 2022 and explain why no letting relief is available. FE (3 marks) Note: You should assume that the tax rates and allowances for the tax year 2022/23 apply throughout. {Total: 10 marks) KAPLAN PUBLISHING 129 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 177 177 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION (FA2022) 218 KENDRA OLDER (ADAPTED) fae] Wolk in the footsteps of a top tutor This scenario relates to three requirements. You should assume that today’s date is 1 January 2023. Kendra Older, aged 93, is unfortunately in poor health with just a few months left ta live. She has made the following gifts during her lifetime: 1 On 20 June 2015, Kendra made a gift to a trust with a gross chargeadle transfer value of £140,000. No inheritance tax arose in respect of this gift 2 On 5 October 2021, Kendra made a cash gift of £253,000 to her children, Kendra owns the following assets: 1 Aresidential property valued at £970,000. The property is an investment property that has always been rented out and never occupied by Kendra. If the property were disposed of during the tax year 2022/23 the disposal would result in a chargeable gain of £174,000. 2 A life essurance policy on her own life, The policy has an open market value of £210,000, and proceeds of £225,000 will be received following Kendra’s death. None of the above valuations are expected to change in the near future, Under the terms of her will, Kendra has left her entire estate to her children. The nil rate banc of Kencra’s husband was fully utilised when he died ten years ego. The nil rate band for the tax years 2015/16 and 2021/22 is £325,000, For the tax year 2022/23, Kendra will pay income tax at the higher rate, Required: (a) Calculate the inheritance tax which wouki be payable if Kendra Older were to die on 31 March 2023. #F (7 marks) (b) Advise Kendra Older why it would not be beneficial to make an immediate lifetime gift of the property valued at £970,000 to her children. Q Notes: 1 Your answer should take account of both the capital gains tax and the inheritance tax implications of making the gift. 2 For this part of the question you should ignore the capital gains tax annual exempt amount and inheritance tax annual exemptions. {3 marks) {Total: 10 marks) 130 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 178 178 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE INHERITANCE TAX QUESTIONS : SECTION 3 219 JAMES (ADAPTED) iy Walk in the footsteps of a top tutor This scenario relates to three requirements. James died on 22 January 2023. He had made the following gifts during his lifetime: 2 On 9 October 2015, a cash gift of £35,000 to @ trust. No lifetime inheritance tax was payable in respect of this gift. On 14 May 2021, a cash gift of £420,000 to his daughter. On 2 August 2021, 2 gift of a property valued at £260,000 to a trust. No lifetime inheritance tax was payable in respect of this gift because it was covered by the nil rate band, By the time of James’ death on 22 January 2023, the property had increased in value to £310,000. On 22 January 2023, James’ estate was valued at £870,000. Under the terms of his will, James left his entire estate to his brother as his children already have consideradle assets, Ames believes his nephew will benefit from his estate in the future. The nil rate band of James’ wife was fully utilised when she died ten years ago. The nil rate bend for the tax years 2035/16 and 2021/22 is £325,000. Required: (2) Calculate the inheritance tax which will be payable as a result of James’ death, and state who will be responsible for paying the tax. HH (6 marks) (b) Explain why it might have been beneficial for inheritance tax purposes if James had lefta portion of his estate to his nephew rather than to his brother. lel {c} (2 marks) Explain why it might be advantageous for inheritance tax purposes for a person to make lifetime gifts even when such gifts are made within seven years of death. & Notes: 1 Your answer should include a calculation of James’ inheritance tex saving from making the gift of property to the trust on 2 August 2021 rather than retaining the property until his death. 2 You are not expected to consider lifetime exemptions in this part of the question. (2 marks) (Total: 10 marks} KAPLAN PUBLISHING 131 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 179 179 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {FA2022) 220 MARCUS ref] Walk in the footsteps of a top tutor This scenario retates to two requirements. Inheritance tax legislation dees not actually contain ¢ definition of whe is, and who is not, a charzeable person. Required: 1 Exptain whether or not a married couple is treated as a chargeable person for inheritance tax purposes, Sd 2 {1 mark) State the special inheritance tax measures which are applicable to married couples. fe {b) (2 marks) This scenario relates to one requirement. Marcus died on 31 December 2022. He had made the following gifts during his lifetime: 1 On 14 January 2031, Marcus mede a chargeable |lfetime transfer of £315,000 to a trust, The trustees paid the lifetime inheritance tax of £600 which arose in respect of this gift, 2 On 3 December 2017, Marcus made @ chargeable lifetime transfer of £395,000 to another trust. In addition to the gift, Marcus paid the related lifetime inheritance tax of £96,250 on this gift. 3 On 1 January 2018, Marcus mace a gift [a potentially exempt transter) of 39,000 £1 ordinary shares in Scarum Ltd, an unquoted investment company, to his daughter. Before the transfer, Marcus owned all of Scarum Ltd's issued share capital of 100,900 £1 ordinary shares. On 1 January 2018, Scarum Ltd's ssares were worth £5 each for a holding of 30%, £9 each for a holding of 76%, and £12 each fora holding of 100% The nil rate band for the tax year 2010/14 is £325,000, and for the tex year 2017/18 it is £325,000. Unider the terms of his wil, Marcus left his entire estate to his wife. Required: Calculate the inheritance tax which will be payable as a result of Marcus's death. Note; You should ignore the inheritance tax annual exemption. 78 (? marks) (Total: 10 marks) 132 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 180 180 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 Section 4 PRACTICE CORPORATION TAX QUESTIONS PRACTICE SECTION A OBJECTIVE TEST QUESTIONS CORPORATION TAX BASICS AND ADMINISTRATION 221 Which of these options identify when a company’s accounting period for corporation tax purposes will come to an end? You can fick more than one box. At the end of a company’s period of account The end of the tax financial yeer Twelve months after the beginning of the accounting period The date the company begins or ceases to trade 222 December 2016 OT question Somily itd filed its self-assessment corporation tax return for the year ended 31 December 2021 on 1S March 2024. What |s the deadline for HM Revenue and Customs (HMRC) to start a compliance check enquiry into Somily Ltd’s corporation tax return for the year ended 31 December 20217 A 8 Cc D KAPLAN 30 31 15 31 April 2025 December 2024 March 2025 January 2025 PUBLISHING i135 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 181 181 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK>: TAXATION 223 (FA2022) September 2015 OT question (ADAPTED) Indicate with a tick in the relevant box which of the following companies will be treated as resident in the UK for corporation tax purposes. Resident Wot resident | ALtd, 8 company incorporated In the UK, with its central | Management and contro! exercised in the UK | BLLtd, 3 company incorporated overseas; with its central | Management and control exercised Inthe UK | C Ltd, @ company incorporated in the UK, with its central | Management and control exercised overseas | DLtd, a company incorporated overseas, with its central | management and control exercised overseas 224° September 2016 OF question Uli Ltd commenced trading on 1 January 2022. The company expenditure prior te 1 January 2022: incurred the following. £ J0 November 2024 6 June 2017 31 July 2021 15 December 2021 Initial market research 15,000 Research into competitors 12,000 Entertaining potential customers and suppliers DBanation to local schoo! falr in exchange for advertising 8,000 2,000 What is the amount of Lill Lid’s deductible pre-trading expenditure in respect of the year ended 51 December 20227 134 A 6 £40,000 £14,000 C £27,000 o £29,000 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 182 182 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 225 CORPORATION TAX QUESTIONS: SECTION 4 You have been given some work to complete, which Inchades a draft calculation of taxable total profits fora client, Trains Ltd. Your manager has asked you to check the following calculation and make any corrections necessary. Year ended 31 December 2022 Tax adjusted trading profit £ 50,000 Property income 6,000 Oividends received from Track Ltd 5,400 interest received 1,200 Taxable total profits 63,200 The amount of interest receivable for the year was £2,000. In addition, the campany realised a chargeable gain of £12,000. What is the correct amount of taxable total profits for Trains itd for the year ended 31 Dacember 20227 £ In the year ended 31 December 2022 Biscuit Ltd had tax adjusted trading profits of £1,200,000. In addition, Biscuit Ltd had property income of £250,000, received dividends of £52,200 and paid a qualifying donation to a national charity of £7,000, What is the corporation tax liability of Biscuit Ltd for the year ended 31 December 2022? A £784 088 B C £285,418 £275,500 0 £274,170 Shed Led had a tax adjusted trading profit for the year ended 31 March 2023 of £250,000. The company also recelved dividends of £5,000. During the year the company sold a painting it had held as an investment for £110,000 realising a chargeable gain of £60,000. The directors had not been expecting the painting to sell for more than £50,000 so they decided to make a qualifying charitatte donation with the excess proceeds of £60,000. Whiat is the corporetion tax payable by Shed Ltd for the year ended 31 March 2023? £ KAPLAN PUBLISHING i35 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 183 183 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION 228 (FA2022) December 2016.0T question Three unconnacted companies have the following results for corporation tax purposes: Company Current accounting period Numberof Taxable 5i%¢group total profits companies Asher Ltd Year ended 31 March 2023 Barton Ltd = Four-month perlod ended 31 December 2022 Chelfryitd = Year ended 30 November 2022 TTP for previous 12 {TTP} month period £ £ 3 700,000 600,000 0 600,000 1,600,000 0 1,600,000 1,400,000 All the companies have had the same number of S$i% group companies for many years. None of the companies have received any dividends. Which of the three companies will NOT have to pay corporation tax: by quarterly instalments for the current accounting period? A Asher itd 8 Barton Ltd only c Chelfry Ltd only Ds Barton Ltd and Chelfry Ltd in the year ended 30 June 2022, the accounts of Chelsea Ltd included the folowing two amounts; 1 £1,000 spent on a Christmas party forthe company’s five employees 2 £2,000 for car lease payments. The Icased car has CO, emissions of 95 grams per k#ometre and hes been leased by the company sirice 1 July 2021. During the year the car was used by one of the company’s directors who drove 4,000 personal miles and 16,000 business miles.in the'car, What adjustments are needed when calculating the trading profit for Chelsea Ltd for the year ended 30 june 2022? Select the appropriate box in the table below. Christrnas party £0 Car lease 230 £300 A £400 c £1,000 . B o Ouring the yoar ended 31 March 2023, Cheddar Ltd purchased a new machine for £100,000, The old machine was disposed of during May 2022 for £10,000. The old machine originally cost £90,000, On 1 April 2022, Cheddar itd had a tax written down value brought forward on the main pool: of £35,000. What are the matimum capital allowances that Cheddar Ltd could claim in the year ended 31 March 2023? KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 184 184 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 During the year ended 33 March 2023, Swiss Ltd purchased a new car for £3,000, which has zero COs emissions. It is used by an employee 30% of the time for private purposes and 70% of the time for business purposes. On 1 April 2022, Swiss Lod had a tax written down value brought forward on the main pool of £35,000. What are the maximum capital allowances that Swiss itd could claim in the year ended 31 March 20237? A £7,740 8 £14,300 c £11,900 BD £7,308 Ouring the year ended 32 March 2023, Edam Ltd purchased a second-hand tory for £193,000 {including VAT of £33,000}, On 1 April 2022, Edam Ltd had a tax written down value brought forwerd on the main poo! of £15,000, What are the maximum capital allowances that Edam Ltd could claim In the year ended 31 March 2023? A £167,700 B £260,100 © £217,200 BD = £200,700 December 2016 OT question Modal ttd lets out an unfurnished investment property, During the year ended 31 December 2022, the company had rental income of £3,000 per month and electricity expenses (relating to the rental property) of £200 per month. The electricity payment for December 2022 was not pald until 30 January 2023. Modal itd also paid interest of £1,200 per month on loan taken outto finance the purchase of the rental property, What amount of property Income will be included in Modal Ltd’s corporation tax computation for the year ended 31 December 2022? £ KAPLAN PUBLISHING i137 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 185 185 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK>: TAXATION 234 (FA2022) Hound Ltd started to trade.on 1 June 2022 and prepared its first set of accounts for the 15month period to 33 August 2023. On which date(s} must Hound Ltd submit a corporation tax return in respect of the 15month period of account? You can tick more than one box. Corporation tax return due 1 March 2024 31 May 2024 LJune 2024 | 31 August 2024 235 December 2015 OT question Giant Ltd isa farge company, and therefore pays its corporation tax by instalments: For the eight-month period ended 31 August 2022, the company estimated that its corporation tax liability would be £400,000. What would Giant Ltd's first corporation tax instalment be in respect of the eight-month period ended 31 August 2022, and what is the due date of this instalment. A- £100,000 on 14 April 2022 B =: £100,000 on 14 July 2022 c £150,000 on 14 April 2022 o £150,000 on 14 July 2022 RELIEF FOR TRADING LOSSES 236 «September 2016 OT question Oblong Ltd has had the following results: Year ended 32 March2022 Trading profit/(loss) Property business income Qualifying charitable donations Year ended 4 =©31 March 2023 E £ 79,400 (102,800) 6,800 10,100 (1,600) (1,300) If Oblong Ltd makes a claim to relieve its trading loss of £102,800 for the year ended 31 March 2023 against total profits for the year ended 31 March 2022, how much of this loss will remain unrclieved? 138 A £6,500 B £16,600 c £5,400 © £23,400 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 186 186 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 237 CORPORATION TAX QUESTIONS: SECTION & Hobart Ltd has had the following results; Year ended Year ended 31 March 2022 31 March 2073 E £ 40,000 15,000 (50,000) 21,000 Tax edjusted trading profit/[loss) Property income Qualifying charitable donations paki (6,000) {14,090} Whet ara Hobart Ltd's taxable total profits, if any, in the year ended 31 March 2022 assurning the company makee a claim to carry back the trading los: to the year ended 31 March 2022? Tasman Ltd has had the following results: Year ended 30 dune 2021 Smonthsended 34 March 2022 £ 40,000 £ 22,000 “4,000 3,000 Tax adjusted trading profit/[loss} interest income Year ended 31 March 2023 E (60,000) 5,000 What js the amount of loss, if any, which is available to carry forward as at 31 March 2023 assurning Tasman itd claims to use the trading loss as soon as possible? A ££ B £30,000 c £19,000 BD £2400 Cairns Ltd has had the following results: Yearended Year ended 30 june 2022 30 June 2023 £ £ Tax adjusted trading profit/(loss) Chargeable gains Qualifying charitable donations paid (40,000) 25,000 S)D0 45,000 {2,000} (3,000) The compeny wishes to daim relict for the tradkng loss as soon as possibic. For each of the following statements concerning the loss relief claimed by Cairns Ltd select whether itis true or fake: True False Cairns Ltd’s taxable total profits in the year ended 30June 2023 are £27,000 The trading Joss may not be offsct against chargcabic gains Cairns Ltd must make a claim far any loss rellef claimed by 30 June 2024 KAPLAN PUBLISHING i393 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 187 187 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2622) 249 Perth Ltd has had the following results: Year ended Year ended 30 April 2022 30 April 2023 Tax adjusted trading profit/(loss) £ £ (120,000) 61,000 Property income, (loss) (28,000) 27,000 Interest Income Qualitying charitable donations paid 30,000 (20,000) 30,000 (10,000) Assuming that Perth Ltd claims loss relief in the most efficient way, select the correct amount of brought forward property and trading losses which will be offset in the year ended 30 April 2023. ”Propertyloss daimedin | Trading loss calmed In y/e 30 April 2023 x | sl ic | o | £0 €0 £8000 y/e 30 April 2023 £108,000 £118,000 £108,000 | £8,000 £110,000 Adelaide Ltd has had the following results: Year ended 31 March 2021 E Tax adjusted trading profit 1600 Property income/ (loss) Qualifying charitable donations paid 5,000 (800) 2022 & 2023 £ 20,000 25,000 (65,000) (900) 10,000 (1,100) What is the amount of the unused property oss as at 31. March 2023 assuring Adelaide Claims relied in the most efficient way? Darwin Ltd ceased to trade on 31 March 2023. tts recent results have been as follows: Year ended 51 March Tax adjusted trading profit/{loss) Chargeable gain 2020 2021 £ £ 45,000 5,000 2022 2023 E £ 32,000 10,000 [100,000] - 9,000 14,000 What are the company’s taxable total profits for the year ended 31 March 2020 assuming the company makes a terminal loss relief claim? 140 A £0 B £6,000 c £4,000 DB £15,000 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 188 188 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 243 CORPORATION TAX QUESTIONS: SECTION & September/December 2020 OT question Flat Wall Lid has the following results forthe year ended 31 December 2022: E 13,300 “$,600 Trading profits Property business income Interest recelvabte 2,500 Qualifying charitable donations (1,000) The cormpany atsa has £20,400 af brought forwerd trading losses. Flat Wall Ltd always utilises its tax losses in the most efficient way possible. Match the date by which Fiat Wall Ltd must make a claim to offset its brought forward trading losses in the year ended 31 December 2022 and the amount of unrelicved treding lose which will be carried forward to the year ended 31 December 2022. Dates Trading losses 31 December 2023 £0 31 December 2024 £1,000 Date by which loss relief daim must be made Trading losses carried forward WITH GROUP ASPECTS 244 June 2015 OF question Ten Ltd is the parent company for a group of companées. The group structure is as follows: Ten ind 90% 70% Forty Lid Each percentage holding represents a holding of ordinary share capital. KAPLAN PUBLISHING i141 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 189 189 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) What is the group retationship between Forty itd and Ten Ltd? PY They form a group for both group relief and chargeatie gains purposes aS&S They form 3 group for chargeable gains purposes but not for group relicf purposes 9° They form a group for group relief purposes but not for chergeable gains purposes They do not form a group for either group: retief or chargeable gains purposes: 245 Computer Ltd owns 75% of Chair Ltd, 60%-of Bin Lid and 100% of Paper inc. Paper inc owns 75% of Cardboard Ltd. All companies are resident in the UK except Paper Inc, which Is resident inthe US. Computer Ltd suffered a trading joss during its most recent accounting period. Indicate with a. tick. in the relevant box to which: companies Computer Ltd's trading loss could be surrendered. Loss can be surrendered to. | Chair btd | Bin id | Paper Ine | Cardboard Ltd 246 December 2016 OF question Acasta Ltd owns 75% of the ordinary share capital of Barge itd and 100% of the ordinary share capital of Coracle Lid. Sarge Lid owns 75% of the ordinary share capital of Dhow Lid, Coracle Ltd owns 51% of the ordinary share capital of Eight Ltd. Which companies, along with Coracle Ltd, are within Acasta Ltd’s chargeable gains group? A Barge itd, Dhow itd and Fight Ltd B C. Barge Ltd only Barge Lid and Dhow Ltd only DO = None. of the other companies 247 Brazil Lid owns 100% of Germany Ltd and 75% of Holland Ltd. Germany Ltd owns 65% of Belgium Ltd and Holland owns 75% of Russie Ltd. Indicate with a tick in the relevant.box which companies form a capital gains group for corporation tax purposes. Capital gains group | Brazil Lid | Germany lid | Holland Ltd | Belghum Utd | Russia Ud 142 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 190 190 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION & Battery Ltd owns 100% of Watch Utd, During the six-month period ended 31 March 2023 Watch Ltd had trading income of £50,000 and property income of £30,000, Ouring the year ended 31 December 2023 Battery Ltd had a trading loss of £100,000. What is the maximum loss that Watch Ltd can claim from Battery Ltd for the period ended 31 March 2023? £50,000 B £25,000 C £40,000 BD £80,000 Apple Lid owns 75% of Grape Lod. Apple Ltd transferred a property with a market value of £300,600 to Grape Ltd. The original cost of the asset was £100,000 and the refevant indexation allowance was £50,000, What Is the deemed acquisition cost for chargeable gains purposes for Grape Lid? Telephone Ltd prepares accounts to 31 March coch year. Throughout the year ended 31 March 2023 Telephone Ltd owned 62% of Desk Led, 75% of Chair Ltd, 55% of Table Ltd {a dormant company) and 100% of Window inc (resident overseas). Telephore Ltd acquired 60% of the share capital of Curtain Ltd on 1 January 2023. What is the total number of companies for the purposes of adjusting the £1,500,000 c D 251 >Ww B vr A Nw augmented profits threshold of Telephone Ltd for the year ended 31 March 2023? Novak Ud owns 20% of Roger Ltd. Roger Ltd owns 70% of Rafael Lid and Rafael Ltd owns SS% ot Andy Ltd. The group structure has been the same for a number of years. What are the profits thresholds for determining if Novak Ltd should pay corporation tax by instalments for the year ended 31 March 20237 A «£375,000 8 £750,000 Cc £1,500,000 5 £500,000 KAPLAN PUBLISHING 145 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 191 191 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION 252 (FA2022) Custard itd sterted trading on 1 August 2022 and prepared its first set of accounts to 31 March 2023. The company’s taxable total profits for the period to 31 March 2023 are £190,000. Custard Ltd has three related 51% group companies from which it received dividends of £70,000. The company also recelved dividends from one non-related company of £27,000. What is the amount of the augmented profits threshold that will be used to determine whether Custard Ltd is a large company forthe period ended 31 March 2023? 4 ~=£250,000 6 £375,000 Cc = £200,000 0 253 £333,333 Bourbon Ltd prepares annual accounts to 31 January, In the year ended 31 January 2023, the company had the following income: £ Trading incorne Chargeable gain 1,450,000 100,000 Bourbon Ltd received dividends of £50,000 from reated 2% group companies and dividends of £20,000 from non-51% related companies. What are the augmented profits of Bourbon Ltd for the year ended 31 January 2023? Ee 254 September 2015 OT question (ADAPTED) During the year ended 31 March 2023, Luck Ltd recetved the following dividends From unconnected companies £ 4,680 From a company in which Luck itd has a 80% shareholding From a.company in-which Luck itd has a 45% shareholding 3,870 1,280 What Is the amount that is included in Luck Ltd's augmented profits for the year ended 31 March 20237 255 A £5,940 8 £9,810 ¢ £3,870 0 £4,680 AB Ltd owns 100% of BD Ltd. For the year ended 31 December 2022 AB Ltd has a trading loss of £20,000, 3 brought forward trading loss of £12,000 and chargeable gains of £8,000_ BD Ltd has total taxable profits of £44,000 Compute the maximum group relief daim that can be made by BD Ltd for the year ended 31 December 2022. £ 144 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 192 192 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 256 A of the following companies CORPORATION are NOT large companies TAX QUESTIONS: SECTION & for the purposes of paying corporation tax. Which of the companies have a due date in reapect of corporation tax of 1 April 2023? You can tick more than one box. Corporation tax due on 1 April 2022 W Ltd — prepared accounts for the year ended 30 June 2022 X Ltd — prepared accounts for the 15 months ended 30 September 2022 Y¥ Ltd— prepared accounts for the year ended 31 March 2022 Z itd = prepared accounts for the eight months to 30 June 2022 257 September 2015 OT question Mammoth Utd commenced trading on 1 January 2020. The company’s augmented profits have been as follows: Period Year ended 31 December 2020 £ 524,000 Year ended 31 December 2021 Year ended 31 December 2022 867,000 $12,000 Throughout all of these periods, Mammoth Ltd hed one related S1% group company. What is the first year for which Maramoth Ltd will be required to pay its corporation tax liability by quarterly instalments? A B 258 Year ended 31 December 2021 None of the years ended 32 December 2020, 2021 or 2022 © Year ended 31 December 2022 0 = Year ended 31 December 2020 September 2015 OT question (ADAPTED) For the year ended 30 June 2022, Forgetful Ltd had a corporation tax liability of £166,250, which It did not pay until 31 duly 2023. Forgetful Lid is not a large company. How much Interest wilt Forgettul Ltd be charged by HM Revenue and Customs {HMRC} in respect of the late payment of its corporation tax liability for the year ended 30 June 2022? KAPLAN PUBLISHING 145 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 193 193 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION (FA2022) PRACTICE SECTION B OBJECTIVE TEST CASES CORPORATION TAX BASICS AND ADMINISTRATION 259 GREENZONE LTD (ADAPTED) fet Walk in the footsteps of o top tutor Greenzone Utd is a trading company. Year ended 30 September 2022 included In the company’s statement of profit or loss for the year anded 30 September 2022 were the following oxponses: £ Repairs and renewals Repainting the exterior of the company’s office building 8,350 Legal fees for renewing a 20-year lease on the office building 19,800 Entertaining expenses Entertaining UK customers 3,600 Entertaining overseas customers Gifts and donations 1,840 Political donations Donation to a small, local charity where Greenzone Ltd received free advertising in the charky's newsletter. Gifts to customers: pens costing £30 each, not displaying Greenzone Ltd’s mame clocks costing £65 each and displaying Greenzone Ltd’s name 740 430 650 910 Plant and machinery On 1 October 2021 the tax written down value of Greenrone Lid’s main pool was £48,150. The following cars were purchased during the year ended 30 September2022: Date of purchase New carl 10 October 2021 Cost FE 10,800 New car 2 10 December 2021 20,400 CO; emission rate O grams per kilometre 48 grams per kilometre The following car was sold during the year ended 30 September 2022: Date of sale Cer3 & September 2022 Proceeds E 9,100 Original cost E 3,500 The original cost of car 3 has previously been added to the main pool, Period enced 31 March 2023 Greenzone Ltd changed fs year end and prepared accounts for the six-month period to 31 March 2023 On 1 October 2022 the tax written down value of Greenzone Ltd’s special rate pocl was £9,200. Ouring the six-month period to 31 March 2023 the company installed a new air conditioning system throughout its offices at a cost of £550,000, which is expected to last 30 years. 146 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 194 194 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION i TAX QUESTIONS: SECTION & Whet armount must be added back In the adjustment of trading profits computation in respect of repairs and renewals and entertaining expenses? Select the appropriate box in the table below, Entertalning expenses Repairs and renewals 2 £0 £19,300 | £1,240 £5,440 A c B D What amount must be added back in the adjustment of trading profits computation in respect of gifts and donations? A £2,310 B £2,740 Cc £1,650 Db £560 3 Assuming that Greenzone Lid alweys claims the maximum capitel allowances, what is tha tax written dowm balance of the main pool at 20 Septramber 20227 4 Assuming thot Greenzone Lid always claims the maximum capital allowonces, what capital allowances would be claimed in respect of the special rate pool for the six months ended 31 March 20237 5 A £500,000 B £525,276 C £501,776 D £550,552 Assuming that. Greenione Ltd Is @ large company for the purposes of paying its corporation tax, on what dates are instalments of its corporation tax liubility for the six months ended 31 March 2023 payable? You can tick more than one bax. Instaknent date 14 14 14 14 January 2023 April 2023 July 2023 October 2023 KAPLAN PUBLISHING 147 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 195 195 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION (FA2022) RELIEF FOR TRADING LOSSES 260 LOSER LTD (ADAPTED) Loser Ltd’s recent results, together with 9 forecast for the year ended 31 March 2024 are: 93 months y/e 30.619 y/e 306.20 vie 306.21 ended 313,22 y/e 213.23 é 15,800 5,200 £ 10,600 1,200 E 15,700 6,500 £ 24300 8,106 £ (78,300) 5,600 E 60,000 3,000 {1,300) (1,400) (800) (2,200) (2,100) = {2,300) Trading profit/(tess} Property income Qualifying charitable donations y/e 31.3.24 The future prospects of Loser Ltd are currently uncertain. Loser Ltd does not own shares in any other company: 1 Which of the following factors are relevant to Loser Ltd’s decision when choosing which loss relief claims to make? Relevant Not reevant Timing of relief Extent to which losses will be wasted 2 Assuming that Loser Lid decided to carry the trading loss forward and offset it in the naxt period as efficiently as possible, what would be the amount of unrelieved loss et 31 March 20247 A = £48,300 B £16,500 3 C £15,300 D £11,000 Aétuming thet Loser Ltd elects to offset the loss at toon as postible what would be the amount of unrelleved loss st 31- March 20237 4. —s Assuming that Loser Ltd wishes to make a current year loss relief claim in respect of the trading toss, select whether the following statements are true or faise. True False The amount of loss ased in the current year can be restricted to avoid wasting QCD relief The claim must be made by 31 March 2075 148 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 196 196 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 5 CORPORATION TAX AVESTIONS: SECTION 4 Assuming that Loser Ltd had ceased trading on 31 March 2023 and claimed terminal loss relief in respect of its trading Joss, what would be the amount of unrelieved loss at 31 March 2023? A £950 B £5,775 Cc £6,200 DB = - £23,750 WITH GROUP ASPECTS 261. DEUTSCH LTD {ADAPTED) fee] Walk in the footsteps ofa top tutor Deutsch Ltd has heli shares in four trading companies for a number of years. All four companies orepare accounts to. 31 March. Year ended 31 March 2023 The following information is available for the year ended 31 March 2023: ResWence Percentage shareholding Trading profit/{loss) Property income Eins itd UK 60% 20% £(74,800) £10,000 £58,900 = Chargeable gains Qualifying charitatie donations paid = Zweiltd UK Drei itd UK. Vier Co Qverseas 50% 70% £(52,700} = £22,600 = £(12,000} - £204,400 - = In the year ended 31 March 2023 Deutsch Ltd had a tax adjusted trading srofit of £277,700 and no other income or gains. Zwei Ltd The remaining 80% of the Zwet Ltd shares are held by Berlin Ltd. On 25 March 2023 Zwei Ltd sold a bublding For its market value of £500,000 to an independent third perty. It had acquired the building jor £200,000 in May 2006. The indezed cost of the building at 15 March 2023 was £281,400. On 1 August 2022 Zwei Ltd acquired a factory at a cast of £460,000, 1 Which of the four trading companies will be treated as related 51% group companies of Deutsch Ltd? You can thck more than one box. Related 51% group company Eins itd Zwei Ltd Drei Ltd Vier Co KAPLAN PUBLISHING 149 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 197 197 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION 2 (FA2022) What ts the maximum amount of group relief that Deutsch Ltd can claim for the year ended 31 March 20237 £64,700 3 B £52,700 Cc £139,500 D £47,430 What is the amount of gain arising on the sale of the building by Zwel Ltd that can be roiled over into the acquisition of the factory? a S Hinstead of selling the building to an independent third party Zwei Ltd had sold it to Bertin Ltd for £450,000 on 15 March 2023, what would have been the capital gains base cost of the building for Berlin Ltd? A £281,400 8 £500,000 C £200,000 D £450,000 What are the dates by which Deutsch Ltd must make a group relief claim in respect of the year ended 31 March 2023 and Zwei Ltd must make a rollover refief claim in respect of the disposal of the building in the year ended 31 March 20237 Group rellef Rollover relief 150 31 March 2025 31 March 2027 31 March 2025 A B 33 March 2027 c 5 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 198 198 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 PRACTICE SECTION C CONSTRUCTED RESPONSE QUESTIONS CORPORATION TAX BASICS AND ADMINISTRATION 262 HARBOUR LTD (ADAPTED) @ Wolk in the footsteps of a top tutor This scenario relates to three requirements. You should assume that today’s date is 25 March 2023. Harboe ur Ltd has previously prepared accounts to 30 November, but has decided to change its accounting reference date to 31 March to be coterminous with the corporation tax financial year. The company’s forecast draft statement of profit or loss for tne four-month period ending 31 March 2023 is as follows: Note £ Operating profit 1 715,500 Other income Property business income 2 13,800 Chargeable gain 3 104,300 Finance costs; interest paid Profit bofore taxation 4 (24,600) 809,000 Notes i Depreciation of £11,760 and amortisation of leasehold property of £1,300 (see below} have been deducted in arriving at the operating profit figure of £715,500. On 1 December 2022, Harbour Ltd acquired a teaschold office budding, paying a premium of £73,000 for the grant of a 20-year lease. The office building will be used for business purpeses by Harbour Ltd throughout the four-month period ending 31 March 2023. 2 Harbour Ltd lets out a freehold warehouse which is surplus to requirements. On 1 December 2022, the tenant paid rent of £15,600 for the six-month period to 31 May 2023. On 1 December 2022, Harbour Ltd paid msurance of £1,800 for the year ended 30 November 2023. 3 The chargeable gain is in respect of the disposal of investments on 10 March 2023. No indexation allawance is available. 4 The interest peid is in respect of Harbour Ltd’s 6% loen notes, with interest for six months of £24,600 being paid on 1 January 2023. interest of £12,300 will be accrued at 31 March 2023, with the corresgonding accrual at 1 December 2022 being £20,500, The Joan notes were issued in order ta finance the company’s trading activities. Capital allowances The tax written down value of both the main peol and the special rate poo! as at 1 Decernber 2022 was ENiL On 12 January 2023, Harbour Ltd purchased plant and machinery for £548,000. This will be a long-life asset tor capital allowance purposes. KAPLAN PUBLISHING 181 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 199 199 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) Required: (aj) Calculate Harbour Ltd's corporation tax liability for the four-month period ending 31 March 2023. Note: Your computation should commence with the operating profit figure of £715,500, {10 marks} The directors of Harbour Ltd now realise that it will be beneficial for the company to prepare accounts for the year ending 30 November 2023 rather than for the four-month period ending 31 March 2023. This condusion is based on the following information which is availablein respect of the period 1 April to 30 November 2023: 1 Harbour Utd will not purchase any further plant and machinery during this period, so the full annual investment abowance of £1,000,000 will be available in respect of the langife ptsnt and machinery purchased on 12 January 2023 for £548,000. 2 Harbour Ltd will sell an investment.on 10 Apeil 2023 and this disposal will result in an allowable capital loss of £42,000. Required: (6) (1 Briefly explain the difference between tax evasion and tax avoidance, and how HM Revenue and Customs (HMRC) are likely to view the situation if Harbour Ltd extends its accounting period in erder to save corporation tax. fel marks} (@) = HHarbour Ltd prepares accounts for the year ending 30 November 2023 rather than for the four-month period ending 31 March 2023, calculate the revised figures that will be included In respect of capital allowances and chargeable gains, Bi (2 marks} (Total: 15 marks) 263 AOEDE LTD, SIANCALTD AND CHARON LTD (ADAPTED) This scenasio relates to four requirements. You area trainee chartered certified accountant dealing with the tax affairs of three unrelated limited companies, Acede Ltd, Bianca Ltd and Charon Lid, Acede Ltd Aoede Ltd commenced trading on 1 April 2021. The company’s results are: Year ended Year ended 31 March 2022 31 March 2023 £ £ (111,300) 67,600 (26,400) 23,400 Chargeable gains 5,800 16,200 Qualifying charitable donations (6,000) [6,600) Trading profit/(loss) Property business income/{toss) Aoede Ltd owns 100% of the ordinary share capital of Moon Ltd. Moon Ltd commenced trading on 1 April 2022 and for the year ended 31 March 2023 made a trading profit of £19,700. 152 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 200 200 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION & Blanca itd Blanca Ltd commenced trading on 1 April 2022. The company’s tax adjusted trading profit based on the statement of profit or loss for the year ended 31 March 2023 is £256,300. This figure Is before making any adjustments required for; 1 = Advertising expenditure of £5,800 Incurred during January 2021 to promote Bisncs Ltd’s new business. This eqpenditure has.not been deducted In calculating the profit of £256,300. 2 —_ Leasing costs of £9,300, which have been deducted in arriving at the profit of £256,300. The leasing costs relate to two cars, which have been leased since 1 April 2022. The first car has CO, emissions of 45 grams per kilometre and Is leased at an annual cost of £4,200. The second car has CO. emissions of €0 grams per kilometre and is leased at an annual cost of £5,100. 3 Capial allowances. On 1 April 2022, Bianca Ltd purchased four new laptop computers ata discounted cost of £1,000 per laptop. The original cost of each laptop wes £1,800, but Bianca Ltd was given a discount because they were darnaged. Bianca Utd also purchased two second-hand cars on 1 April 2022. Details are: Cari Cost £ 12,400 CO, emission rate O grams per kflometre Car2 13,900 60 grams per kilometre Charon Ltd During the year ended 31 March 2023, Charon Ltd disposed of two Investment properties. The first property was sold for £368,000 during January 2023, This property was purchased for £147,000 during October 1996, and was extended at a cost of £39,000 during Jurie 2021, The second property was sold for £157,000 during January 2023. This property was purchased for £172,000 during December 2019. The indexation factor for October 1996 to December 2017 Is 0.308. Required: {e)} {i} On the basis that Aoede Ltd claims relief for its losses as carty as possible, calculate the taxable total profits of Aoede Ltd for the years ended:31 March 2022 and 31 March 2023,:and of Moon Ltd for the year ended 31 March 2023. 8 {5 marks) {i} + Seplain which aspect of Acede Ltd’s loss relief claim meds in part [i) & not beneficial for the company to make. fal {1 mark} {b) = Calculate Bianca Lid’s revised tax adjusted trading profit for the year enced 31 March 2023, (5 marks} (ce) Calculate Charon Ltd's chargeable gains and capital losses, if any, for the year ended 31 March 2023, (4 marks) (Total: 15 marks) KAPLAN PUBLISHING iss https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 201 201 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) 264 MIXTURELTO This scenario relates to five requirements. Mixture Ltd is a large company and therefore has to make quarterty instalment payments in respect of Its corporation tax Hability, For the year ended 31 March 2023, Mixture Ltd has taxable total profits of £470,000-and dividends from anon-group company of £45,000. The company had the same level of profits for the year ended31 March 2022. Mixture Ltd has had two 51% group companies for many years. Capital expenditure Mixture Ltd incurred the following capital expenditure during the year ended 31.March 2023; 1 2 A new freehoid office building was purchased. The purchase price included £22,200 for a stairease linking the two floors of the building, £16,400 for sprinkler equipment and the fire alarm system, £18,700 for doors and windows and £27,100 fcr the ventilation system. Machinery was purchased for £76,600. At the same time, 2 further £9,200 was spent on building alterations which were necessary for the installation of this machinery. 3 Mowabk partition walls were purchased for £33,800. Mixture Ltd usas these to divide up its open olan offices, and the partition walls are moved around on a regular basis. 4 Anew decorative wall was constructed around the boundary of Mixture Ltd's business premises at & cost of £44,700. Property business income Mixture Lid lets out a warehouse which is surplus to requirements, although the property was empty between 1 September 2022 and 28 February 2023. The following Income and expenditure relates to the year ended 31 March 2023: _Date recelved/(pald) 1 January 2022 | 28 March 2022 Insurance forthe year ended 31 December 2022 Rent forthe quarter ended 30 June 2022 £ (1,700) 7,400 | 4 July 2022 Rent for July and August 2022 5,200 | S December 2022 | Lianuary 2023 Advertising for tenants Insurance for the year ended 31 December 2023 (900) (1,900) | 1 March 2023 Prernium for the grant of 2 five-year lease 18,000 | 1 March 2023 Rent for the quarter ended 31 May 2073 8,400 Required: (a) «6() =—s Explain why Mbcture Ltd is dassed as a large company for the year ended 31 March 2023, (2 marks} (1) = Caleulate Mixture Ltd's corporation tax Nability forthe year ended 31 March 2023, and explain when this will have been paid- Note: You should assume that Mixture Ltd's profits accrued evenly throughout the year. {3 marks} KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 202 202 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 {b}) = List the expenditure incurred by Mixture Ltd during the year ended 31 March 2023 which will have qualified as plant and machinery for capital allowance purposes. Notes: 1 Your answer should indicate by the use of zero (0) any item of expenditure which does not qualify as plant and machinery. 2 You are not expected to calculate the capital allowances or to state the rate of capital allowance available, {c} (4 marks) Explain why a company may wish to make a short-life asset election for capital allowance purposes. {d) (2 marks) Caleulate the property business income figure which will have been induded in Mixture Ltd's taxable total profits of £470,000 for the year ended 31 March 2023. (4 marks) (Total: 15 marks) 26S ONLINE LTD (ADAPTED) re 8 Walk in the footsteps ofa top tutor This scenario relates to two requirements. The following information is available in respect of Online Ltd for the year ended 321 March 2023: Operating profit Online Ltd's operating profit for the year ended 31 March 2023 is £696,700. Depreciation of £21,660 and amortisation of leasehold property of £5,000 (see below) have been deducted in arriving at this figure. Leasehold property On 1 April 2022, Online Ltd acquired a leasehold office bullding, paying a premium of £90,000 for the grant of aten-year lease. The office building was used for business purposes by Online Ltd twroughout the yer ended 332 March 2023. Plant and machinery On 1 April 2022, the tax written down values of plant and machinery were as follaws; Main pool £ 56,700 Special rate pool 13,433 The following transactions took place during the year ended 31 March 2023: £ 14 May 2022 Sold a ¢ar (18,100) 18 July 2022 Sold all items included in the spccial rate poo! (9,300) 2? January 2023 Purchased @ car 13,700 The car sold on 14 May 2022 for £18,100 was originally purchased during the year ended 31 March 2022 for £17,200. This expenditure was added to the main pool. The car purchased on 27 January 2023 for £13,700 hes a CO) emission rate of 40 grams per kiometre. The car is used 35 3 pool car by the company’s employees. KAPLAN PUBLISHING i185 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 203 203 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) Qualifying charitable donations During the year ended 32 March 2023, Online Led made qualifying charitable donations of £6,800. These were not included in arriving at the operating profit above. Disposal of shareholding in Network pic On 20 March 2023, Online Utd sold its entire shareholding of £1 ordinary shares im Network pk for £50,600. Onilne Ltd had originally purchased 40,000 shares (less than 6 1% shareholding) in Natwork ple on 24 June 2012 for £49,300, On 7 October 2015, Online Ltd sold 22,000 of the shares for £62,200. indexation factors are as follows: June 2012 to October 2015 October 2015 to December 2017 0.073 0.072 June 2012 to December 2017 0.150 Brought forwerd losses As at April 2022, Online Ltd had the following brought forward amounts of unused losses: £ Capital loss Property business loss 4,700 12,500 Online Ltd wishes to utilise the property lossin the current period. Planned acquisition Online Ltd currently does not have any 51% group companies. However, Online Ltd Is planning to acquire a 6036 shareholding in Offline Ltd in the near future. Offfine Ltd Is profable and will pay reguiar dividends to Online Ltd, Required: (a) Calculate Online Ltd’s taxable total profits for the year ended 31 March 2023. 7 (23 marks) (b) Briefly explain how the acquisition of Offilne Ltd will affect the calculation and payment of Online Ltd’s corporation tax liability in future years. fel (2 marks) (Total: 45 marks) 266 STRETCHED LTD (ADAPTED) This scenario relates to two requirements. Stretched Ltd has always orepared its accounts to 31 December, but has decided to change its accounting reference date to 31 March. The company’s results for the 15-month period ended 31 March 2023 are as follows: 1 The tax adjusted trading profit is £642,500, This figure is before taking account of capital allowances. 2 Until Janusry 2023 the company has never been entithed to copital allowances as ell sssets were leased. On 15 January 2023 the company bought used office equipment for £50,000, and a car with COz emissions of 42 grams per kilometre for £7,500. 3. =—s- There is. a property business profitof £45,000 for the 15-month period ended 32 March 2023. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 204 204 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 4 On 15 April 2022 the company disposed of sore investments, and this resulted In a chargeable gain of £44,000. On 8 February 2023 the company made a further dispasal, and this resulted in a capital loss of £6,700. 5 Dividend income of £30,000 was receved on 10 September 2022. 6 A qualifying charitable donation of £5,000 was made on 31 March 2023, As at 1 January 2022 Stretched Ltd had unused trading losses of £330,000, and unused capital losses of £3,000. Stretched will make a claim to relieve these losses as soon as possible where necessary. In the year ended 31 Decernber 2021 the company had taxable total profits of ENIl and no dividend income. Stretched Ltd has no related 51% group companies Required: {e) Calculate Stretched Ltd's corporation tax liabilities in respect of the 15-month period ended 31 March 2023, and advise the company by when these should be paid, (13 marks) (b) State the advantages for tax purposes of a company having an accounting reference date of 31 March instead of 31 December, (2 marks) (Total: 15 marks} 267 STARFISH LTO (ADAPTED) [36 Walk in the footsteps of a top tutor This scenario relates to two requirements, Starfish Ltd, a retailer of scuba diving equipment, was incorporated on 15 October 2018, and commenced trading on 1 December 2018. The company initially prepared accounts to 31 March, but changec its accounting reference date to 31 December by preparing accounts for the nine-month period ended 31 December 2022. Starfish Ltc ceased trading on 31 March 2023, and a resolution was subsequently passes to commence winding up procedures. Starfish Ltd’s results for each of its periods of account up to 31 December 2022 are: Tax adjusted trading profit Four-month period ended 31 March 2019 Year ended 31 March 2020 Year ended 31 March 2021 Year ended 31 March 2022 Nine-month period ended 31 December 2022 KAPLAN PUBLISHING £ 2,600 Bank interest Qualifying charitable donations £ E 600 (800} $1,600 53,900 14,700 1,400 1,700 0 (1,000) (900} (700} 49,900 0 (600) is? https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 205 205 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) The company's summarised statement of profit or loss for Its final three-month perlod of trading ended 31 March 2023 is as follows: Notes. £ Gross profit £ 16,100 Expenses Depreciation Donations impairmont loss in respect of a trade debt Other expenses 34400 1 1,650 2,000 2 168,050 (206,100) Loss before taxation (290,000) Note 1- Donations Donations were made as follows: Donation to a political party Qualifying charitable donation £ 300 1,350 1,650 Note 2 = Other expenses Other expenses are as follows; £ Entertaining customers Entertaining employees Counselling services provided to employees who were made redundant Balance of expenditure {all allowable) 3,600 1,340 8,400 154,210 168,050 Note 3 — Plant and machinery On 1 January 2073 the tax written down values of the company’s plant and machinery were: Main poo! £ 23,600 Special rate pool 13,200 On 10 January 2023 Starfish Lid purchased a laptop computer for £3,120, This figure Is inclusive of value added tax {VAT}. On 31 March 2023 the company sald ail of the Items included in the main pool for £31,200, and the laptop computer for £1,800. The only item in the special rate pool wras a car which had been acquired for £16,000 and which was sold on 31 March 2023 for £9,600. The car wat used by the managing director, and 20% of the mileage was for private journeys. 158 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 206 206 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 Starfish Ltd is registered for VAT. AN of the above figures are inclusive of VAT where applicable. None of the items included im the main pool was sold for more than its original cost, and all of the items in the main poo! were standard-rated. Required: (2) Calculate Starfish Ltd’s tax adjusted trading loss for the three-month period ended 31 March 2023, Hi Your computation should cornmence with the loss before taxation figura of £190,000, and should also fist all of the items referred to in notes 1 to 3 indicating by the use of zero (0) any Items that do not require adjustment. (b) (10 marks) Assuming that Starfish Ltd claims relief for its trading loss on the most beneficial basis, calculate the company’s taxable total profits for the four-month period ended 31 March 2019, the years ended 31 March 2020 to 2022 and the nine-month period ended 31 December 2022, # (5 marks) (Totals 15 marks) MAISON LTD (ADAPTED) ree Wolk in the footsteps of a top tutor | HIcae Answer debrief This scenario relates to one requirement. You area trainee Chartered Certified Accountant dealing with the tax affairs of Maison Ltd. Your assistant has prepared a partly completed draft corporation tax computation for the year ended 31 March 2023, All of your assistant’s workings for the figures grovided are correct, but there are four uncompleted sections, all related to property, which your assstant does not know how to dea! with. The assistant’s corporation tax computation, along with references to the uncompleted sections (with missing figures indicated by a question mark (?}), is shown below: Maison Ltd — Corporation tax computation for the year ended 31 March 2023 Operating profit Deduction for lease premium Uncompleted section 1 £ 892,900 ? Capital allowances 2 ? Structures and buildings allowance Irading profit Property business income Chargeable gains Taxadle total profits Corporation tax 2 ? ? ? ? ? ? KAPLAN PUBLISHING 3 4 iss https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 207 207 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) Uncompleted section 1 = Deduction for lease premium Your assistant has idanvfied that on 1 January 2023, Maison Lid acquired a leasehold office building, paying a premium of £44,000 for the grant of a 12-year lease. The office building was used for business purposes by Maison Lid throughout the period 1 January to 31 March’ 2023. Uncompleted section 2 ~ Capital allowances Your assistant has correctly calculated that capital allowances of £23,800 are available onthe main pool. However, she is unsure of the amount of capital allowances which are available in respect of the £140,000 spent by Maison Ltd during November 2022 constructing an extension which is adjacent to the company’s existing freehold office bullding, The extension is used by the compeny's employeos as a staff room and was available for use fram 1 December 2022. The total cost of £140,000 is made up as follows: Integral to the bullding £ Building costs of extension 93,300 New ventilation system 6,700 New heating system Not integral to the bullding 3,900 New furniture and furnishings New refrigerator and microweve cooker Total cost 33,500 2,600 140,000 Uncompleted section 3 — Property business Income On 1 July 2022, Maison Ltd purchased a freehold warehouse. The werehouse |s currently surplus to requirements, so it was tet out from 1 November 2022. However, the warehouse was purchased ina dilapidated state and could not be let until repair work was carried out during August 2022. This fact was represented by 2 reduced purchase price. Your assistant has listed any income and expenditure that Is potentially relevant: Date recelved/({paid} 1 July 2022 insurance for the period te 31 March 2023 August 2022 Initial repairs £ (1,035) (17,680) 28 September 2022. = Advertising for tenants 1 November 2022 Security deposit of two months’ rent 1 November 2022 Rent for the quarter ended 31 January 2023 1 February 2023 Rent for the quarter ended 30 Apri! 2023 160 (780) 12,200 18,300 18,300 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 208 208 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 Uncompleted section 4 —- Chargeable gains Maison Ltd disposed of two Investment properties during August 2022, both resulting in gains. Your assistant has correctly calculated the gains, but is unsure of the amount of indexation allowance evafable. The assistant’s workings are as follows: Date Disposal proceeds First property August 2022 Cost April 2009 Enhancement expenditure January 2022 Gain Second property £ £ 237,000 143,000 (101,000) (117,000) (26,200) 0 109,800 26,000 Indexation factors are: Aoril 2009 to December 2017 0.315 No rollover relief claim is possible in respect of these gains. Prepare a completed version of Maison Ltd’s corporation tax computation for the year ended 31 March 2023 after dealing with the sections uncompleted by your assistant. Notes: 1 Your computation should commence with the operating profit figure of £892,900, and you should indicate by the use of zero (0) any items which are not included in your calculation. 2 In calculating the operating profit figure of £892,900, no deduction has been made for the lease premium (uncompleted section 1) or any capital allowances {uncompleted section 2). It also does not include any income or expenditure in relation to property business income (uncompleted section 3} or any chargeable gains in relation to the disposal of the two investment properties (uncompleted section 4). (Total: 15 marks) Hise Calculate your allowed time and allocate the time to each separate part. E-COMMERCE PLC (ADAPTED) we Walk in the footsteps of c top tutor This scenario relates to two requirements. You are a trainee Chartered Certified Accountant, and your firm has recently completed its audit of E-Commerce pic's financial statements for the year ended 31 March 2023. The company runs an internet-Dased retail business, E-Commerce pic prepared its own corporation tax computations for the year ended 31 March 2023, and your colleague has completed your firm’s tax audit of these figures. KAPLAN PUBLISHING 161 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 209 209 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) E-Commerce pic's original corporation tax computation, along with references to your colleague's quenes, is as foBows: E-Commerce pic- Corporation tax computation for the year ended 31 March 2023 Queries £ Operating profit Deduction for lease premium 1 2 2,102,300 {14,400} Capital allowances 3 (203,200) 4 5 1,878,700 156,700 42 400 Trading profit Property income Loan interest receivable Taxable total profits 2,077,800 Corporation tax st 19% 394,782 Your colleague has raised some queries in regard to E-Commerce pic's corporation tax computation. Apart from any corrections arising from your colleague's queries, the corporation tax computation prepared by E-Commerce pic does not contain any errors. Query 1— Legal fees E-Commerce pic has treated all of the company’s legal expenditure as allowable when calculating its operating profit. However, legal expenses include the following: 1 2 Legal fees of £80,200 in: connection with an issue of £1 preference shares. Legal fees of £92,800 In cannection with the issue of loan notes. The loan was used to finance the Cornpany’s trading activities. 3 Legal fees of £14,900 In connection with the renewal of a 99-year lease of property. 4a Legal fees of £8,800 in connection with the registration of trade marks. Query 2 — Deduction for lease premium The amount assessed on the landlord has been correctly calculated, but the life of the lease should be 15 years and not the 12. years used by E-Commerce pic. The lease commenced on 1 April 2072. Query 3— Capital allowances There are two issues here; 1 E-Commerce ple purchased four cars during the year ended 31 March 2023, and all four cars have been Included in the plant and machinery main pool. Details are as follows: Cost CO, emission rate E 162 Car1 Car 2 20,300 24,900 42 grams per kilornetre 44 grams per kilometre Car3 Car4 51,750 19,800 145 grams per kilometre O grams per kilometre KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 210 210 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 2 CORPORATION TAX QUESTIONS: Four years ago, E-Commerce pic purchased computer equipment on asset election has been made, For the year ended 31- March 2023, allowance claimed on this equipment was £1,512, calculated at However, the computer equipment was actually scrapped, with 10 December 2022. SECTION 4 which a short-life the writing down the rate of 18%. all proceeds, on Query 4— Property income There are two issues here: i E-Commerce ple warehouse whith Glapkdated state, represented by a has claimed a deduction for repairs of £95,300 in respect of a was purchased on 21 May 2022: The warehous: was purchased in a and could not be let until the repairs were carried out. This fact was reduced purchase price. The property was first let out on i July 2022, 2 E-Commerce pic did not receive the rent due of £16,200 in respect of this warehouse for the quarter ended 31 May 2023 until 1 April 2023. None of this amount has been taken into account in calculating the property business profit for the year ended 31 March 2023. Query 5 — Loan interest receivable The accrual at 31 March 2023 has been calculated at £4,800, but because of falling Interest retes the eccruel should actually be £3,500, Other information For the year ended 31 March 2022, E-Cornmerce ple had augmented profits of £1,360,000, and has forecast that its augmented profits for the year ended 31 March 2024 will exceed £2,000,000E-Commerce ple does not have any related $1% group companies. Required: (a) Prepare a revised version of E-Commerce pic’s corporation tax computation for the year ended 31 March 2023 after making any necessary corrections arising from your colleague’s queries. 28 Note: Your calculations should commence with the operating profit figure of £2,102,300, and you should indicate by the use of zero (0) any items referred to in queries 1 to 5 which do not require adjustment. {b) (12 marks} Explain why E-Commerce pic will not have been required to make quarterly instalment payments in respect of its corporation tax liability for the year ended 31 March 2023, but will have to do so for the year ended 31 March 2024. S (3 marks) (Total: 15 marks) KAPLAN PUBLISHING 165 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 211 211 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 270 LUCKY LTD (ADAPTED) re 2] Watk in the footsteps ofa top tutor This scenario relates to three requirements. Lucky Ltd was incorporated on 20 July 2022, and commenced trading on 1 December 2022. The following information is avellable for the fourznonth period 1 December 2022 to 31 March 2023. 1 The opersting profit for the four-month period ended 31 March 2023 Is £532,600. Advertising expendaure of £4,700 (incurred during September 2022), depraciation of £14,700, and amortisation of £9,000 have been deducted in arriving at this figure. The amortsation relates to a premium which was paid on 1 December 2022 to acquire a leasehold warehouse on a 12-year tease. The amount of premium assessed on the landlord as income wes £46,800, The werehouse was used for business purposes Sy Lucky Ud throughout the period ended 31 March 2023. The following donations made by Lucky Ltd during the period 1 December 2022 ta 31 March 2023 have also been deducted in arriving at the operating pratit above: £ 19 December Toys given to a local children’s hospice as Chwistrrias 2022 gifts 2? February Online donation toa registered national charity chosen 2023 by the employees of Lucky Ld 274 835 Lucky Ltd purchased the following asets during the period 20 huly 2022 to 31 March 2023: € 19 August 2022 New computer 6,300 22 January 2023 New integral features 41,200 31 January 2023 New office equipment 32,800 17 March 2023 New car 12,800 The integral features of £41,200 are in respect of expenditure on electrical systems, a ventilation system and lifts which are integral to a freehold office building owned by Lucky Ltd. The car has zero CQ; emissions, Lucky iid made a loan to another company for non-tracing purposes on 1 Fetruary 2023. Loan interest income of £700 was accrued at 31 March 2023. 164 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 212 212 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 Required: (a) State when an accounting period starts for corporation tax purposes, el (2 marks) {b} Calculate Lucky Ltd’s corporation tax Mability for the four-month period ended 31 March 2023, Note: Your computation should commence with the operating profit of £532,600, and should also indicate by the use of zero (0) any items referred to in the question for which no adjustment is required. Ignore VAT. (11 marks} (c) Advise Lucky Ltd as to how long it must retain the records used in preparing its selfassessment corporation tax return for the four-month period ended 31 March 2023, and the potential consequences of not retaining the records for the required period, fed (2 marks) (Total: 15 marks) RELIEF FOR TRADING LOSSES 271 LAST-ORDERS LTD (ADAPTED) @ Walk in the footsteps ofa top tutor This scenario relates to three requirements. Last-Orders Lid ceased treding on 31 Jenuary 2023, having traded profitably for the previous ten years. The ordinary share capital of Last-Orders Ltd is owned 80% by Gastro Ltd and 20% by Gourmet Ltd, Last-Orders Ltd's summarised statement of profit or joss for the ten-month peéricd ended 31 Jarvuary 2023 is.as follows: Revenue Operating expenses Note Deoreciation £ 176,730 (9,460) Employee casts Lease of car 1 2 (142,400) (1,600) Other expenses 3 (299 $10) Operating loss (276,180) Other income Property business income 4 11,500 Profit on dispasal of freehokd office building 5 47,400 Loss before taxation KAPLAN PUBLISHING (217 580) 165 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 213 213 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) Note 1 ~ employee costs Employee costs are as follows: £ Counselling services provided to employees who were made redundant Pension contributions paid on bahalf of employeas 5,200 12,200 Employer dass 1 national insurance contributions (NICs) Employer dass 1A NICs payable on benefits provided for employees 11,890 1,160 Employee bonuses dedared but unpaid — these will not be paid during 2023 Balance of expenditure (all allowable) 10,400 101,550 147,400 Note 2 — lease of car The lease is in respect of a car with CO, emissions of 45 grams per kilometre Note 3— other expenses Other expenses areas follows: € Entertaining UK suppers 1,920 Entertaining overseas customers 440 Qualifying charitable donation 800 Balsnce of expenditure (all allowable) 296,650 299,810 Note 4 ~ property business income Last-Orders Ltd let out3 freehold office building. The following income and expenditure was received or incurred during the final 12 months of trading: Date received/(pzid) 1 February 2022 1 February 2022 £ Rent for the six months ended 31 July 2022 Insurance for the 12 months ended 31 January 2025 19,200 (1,800) 1 August 2022 Rent for the six months ended 31 January 2023 19,200 21 November 2022 Repairs followinga fire (not covered by Insurance) (7,700) Note 5 — disposal of freehold office building The office building was sold on 31 January 2023. The profit has been calculated as disposal proceeds of £126,800 less cost of £79,400. The indexation allowance is £12,900, The office building was never used for business purposes. Additional information — Plant and machinery On 1 April 2022, the tax written down vatue of Last-Orders Ltd’s main poo! was £24,200. All of the Items Included in the main pool were sokd for £13,600 on 31 January 2023, with none of the items sotd for more than their original cost, Last-Orders Ltd has previously always made up its accounts to 31 March. Bath Gastro Ltd and Gourmet Ltd are profitable and make up their accounts to 31 March. 166 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 214 214 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 Required: (a) Calculate Last-Orders Ltd's tax adjusted trading loss for the ten-month period ended 31 January 2023. & Notes: 1 2 Your computation showid commence with the operating joss figure of £276,480, and should also list all of the items referred to in notes 1 to 3, indicating by the use of zero (0) any items which do not require adjustment. You should assume that Last-Orders Ltd daims the maximum possible amount of capital allowances. {b) (6 marks) Assuming that Last-Orders Ltd claims relief for its trading loss against its total profits for the ten-month period ended 31 January 2023, calculate the company’s taxable total profits for this period. Note: Your answer should show the amount of unused trading loss at 31 January 2023, {ch} (5 marks} Explain the alternative ways in which Last-Orders Ltd’s unused trading loss for the ten-month period ended 31 January 2023 could be relieved. fl (4 marks) (Total: 15 marks) 272 WRETCHED LTD (ADAPTED) ro] Wolk in the footsteps of a top tutor This scenario relates to three requirements. Wretched Ltd commenced trading on 1 August 2022, preparing its first accounts for the eightmonth period ended 31 March 2023. Wretched Ltd |s incorporated In the United Kingdom, but Its three directors are all nonresident in the United Kingdom. Board meetings are always held overseas. The following information is available Trading loss The trading loss based on the draft accounts for the eight-month period ended 31 March 2023 is £141,200. This figure is before making any adjustments required for: i Advertising expenditure of £7,990 incurred during April 2022. This expenditure has not been deducted in arriving at the trading loss for the eight-month period ended 31 March 2023 of £141,200. 2 The premium which was paid to acquire a leasehold office building ona ten-year lease, 3 Capital allowances, Premium paid to acquire a leasehold office building On 1 August 2022, Wretched Ltd paid a premium to acquire a leasehold office building on a ten-year lease, The ammount of premium assessed on the landiord as income was £34,440, The office bullding was used for business purposes by Wretched Ltd throughout the eightmonth period ended 31 March 2023. KAPLAN PUBLISHING 167 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 215 215 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) Plant and machinery On L August 2022, Wretched Ltd purchased three new laptop computers ata discounted cost of £400 per laptop. The original price of each laptop was EB50, but they were sold at the @scounted price because they were ex-displey, Wretched Ltd also purchased three second-hand cars on 1 August 2022, Details ere: Cost CO; emissions rate Ceri £ 8,300 Car2 12,300 SO grarns per kilometre Car3 18,800 65 grams per kilometre O grams per kilometre Property income Wretched Ld lets out a warehouse which is surplus to requirements, The warehouse was let out frorn 1 August to 31 October 2022 at a rent of £1,400 per month. The tenant left on 31 October 2022, and the warehouse was not re-let before 31 March 2023. Ouring the eght-month period ended 31 March advertising for tenants. Due to. a serious flood, Wretched Ltd spent 2023, Wretched Lid-spent £2,100 on £5,900 on repairs during January 2023. The: damage was not covered by insurance. Loss on the disposal of shares On 20 March 2023, Wretched Ltd sold its entire 1% shareholding of £1 ordinary shares in Worthless ple for £21,400. Wretched Ltd had purchased these shares on 5 August 2022 for £26,200, Other information Wretched Ltd does not have any 51% group companies. Wretched Ltd will contirue to trade for the foreseeable future. Required: (a) - State, giving reasons, whether Wretched Ltd i: resident o¢ not resident in the United Kingdom for corporation tax purposes. a (b) (2 mark) Assuming that Wretched Ltd is resident in the United Kingdom, calculate the company’s trading loss, property income foss and capital loss for the eight-month period ended 31 March 2023, #2 Note: You should sssume that the company claims the maximum available capital allowances. (¢) {41 marks) Explain how Wretched Lid will be able to relieve its trading loss, property income loss and capital loss for the eight-month period ended 31 March 2023. fel (3 marks) (Total: 15 marks} KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 216 216 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 273 RETROLTD & CORPORATION TAX QUESTIONS: SECTION 4 Wolk in the footsteps of o top tutor This scenario relates to three requirements. Retro Lid’s summarised statement of profit or loss for the year enced 31 March 2023 is as follows: Note £ Gross profit E 127,100 Operating expenses Depreciation 27,240 Gifts and donations impairment boss 1 2 2,300 1,600 Leasing costs Other expenses 3 4 4400 205,160 (240,700) Finance costs interest payable 5 Loss before taxation (6,200) (120,000) Note 1 - Gifts and donations Gifts and donations are as follows: £ Gifts to empiayees (food hampers costing £60 each) 720 Gifts to customers (calendars costing £8 each and displaying Retro Ltd's name) Political donations 480 420 Qualifying charitable donations 680 2,300 Note 2 — Impairment loss On 31 March 2023, Retro Utd wrote off an impairment loss of £1,600 relating to a trade debt. This was in respect of an invoice which had been due for payment on 10 November 2022: Note 3 - Leasing costs The leasing costs of £4,400 are in respect of a. car lease which commenced on 1 April 2022. The leased car has CO2 emissions of 95 grams per kilometre. Note 4 — Other expenses The figure of £205, 160 for other expanses includes a fine of £5,100 for abreacn of health and safety regulations, and legal fees of £4,850 in connection with the defence of Retro Ltd’s internet domain name. Ihe remaining exoenses are all fully allowable. KAPLAN PUBLISHING 169 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 217 217 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) Note 5 = Interest payable The interest payable is in respect of the company’s 5% loan notes which were repaid on 31 Ady 2022. Interest of £5,600 was paid on 31 July 2021, and an accrual of £3,200 had been provided for at 1 April 2022. The loan notes were issued in order to finance the company's trading activities. Additional information Pisnt and machinery On 1 April 2022, the tax written down value of the plant and machinery main pool was £39,300. The following new vehidies were purchased during the year ended 3) March 2023: Date of purchase Cost CO2 emission rate £ Ceri Delivery van Car 2 8 June 2022 3 August 2022 19 October 2022 14,700 28,300 12,400 38 grams per kilometre 82 grams per kilometre 0 grams per kilometre Previous results Retro itd commenced trading on 1 September 2020. The company’s results for its two previous periods of trading are as follows: Year ended Period ended 31 August 2021 31 March 2022 £ E Tax adjusted trading profit 56,600 47,900 Bankinterest receivable 1,300 0 Qualifying charitable donations paid (546) (330) Future results Retro Lid % expected to return to profitability in the year ended 31 March 2024 and to continue to be profitable in subsequent years. Required: (a) Calculate Retro Ltd's tax adjusted trading loss for the year ended 31 March 2023. i Your computation should commence with the lose before taxation figure of £120,060, and should also list afl of the items referred to In notes 1 to 5, indicating by the use of zero (0) any items which do not require adjustment. (9 marks} (b} Assuming that Retro itd claims relief for its trading loss as early as possible, calculate the company’s taxable total profits for the year ended. 31 August 2021 and for the seven-month period ended 32 March 2022. #2 (4 marks) (c) Identify the amount of unrelleved trading loss which Retro Ltd will have at 31 March 2023, and state how this can be rellewed, 22 {2 marks) (Total: 15 marks) 170 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 218 218 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 274 MOONCAKE LTD ret CORPORATION TAX QUESTIONS: SECTION 4 Walk in the footsteps ofa top tutor This scenario relates to four requirements, Mooncake Ltd reported an operating loss of £93,820 in its statement of profit or loss for the yeerended 32 March 2023 as follows: Note Revenuc Operating expenses ~ Depreciation ~ Leasing costs ~ Other expenses £ 184,550 (7,230) (6,380) (264,760) 1 2 Operating loss (93,820) Note 1 = Leasing costs Leasing costs are as fofows: éE 2,980 3,400 Lease of office equipment Lease of car with CO> emissions of 75 grams per kiiometre 6,380 Note 2 - Other expenses Other expenses are as follows: £ Entertaining staff (cost of £160 per head) 4,320 Entertaining overseas customers 8,720 Qualifying charitable donstions #alance of expenditure {all allowable) 1,690 250,120 264,700 Additional information Plant and machinery On 1 April 2022, the tax written down value of the main poo! was £43,700 The following vehicles were sold during the year ended 31 March 2023; Date of sale Delivery van 12 April 2022 Proceeds £ 11,800 Original cost £ 14,700 Car 2 13 August 2022 8,400 B,100 Car 2 5 March 2023 5,300 12,200 The original cost of car 1 had previously been added to the main pool, The original cost of car 2 qualitied tor 2 100% first year allowance. KAPLAN PUBLISHING i171 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 219 219 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) Property business loss Nooncake Ltd has a property business loss of £4,400 for the year ended 31 March 2023. Profit on disposal of shares NMoonceke Ltd mode a profit on disposal of shares of £3,700 in respect of 0 1% sharcholding which was sold on 8 November 2022. This profit on disposal is calculated as disposal proceeds of £34,200 less cost of £30,500. The indexation allowance is £6,700. Results for the year ended 31 March 2022 Mooncake Ltd's results for the year ended 31 March 2022 were: Trading profit £ 138,200 Property business income 23,700 Capital loss {4,900} Qualifying charitable donations (1,400) Required: (a) State the factors which will Influence a company's choice of foss relief ctaims. (2 marks) (b) Calculate Mooncake Ltd's tax adjusted trading loss for the year ended 31 March 2023. Notes: i = Your computation should commence with the operating loss figure of £93,820, and should indicate by the use of zero (0) ony items which do not require adjustment. 2 You should assume that the company claims the maximum available capital allowances. (ce) {7 marks) Assuming that Mooncake Ltd wishes to claim relief for its losses as early as possible: (0 Calculate the cornpany's corporation tax Ilabilities for each of the years ended 31 March 2022 and 33 March 2023, (@) (4 marks) «= Calculate the amount of unused loxses or paymants which Mooncake Ltd can carry forward to be utilised in the year ending 21 March 2024. (2 marks} (Total: 15 marks) 172 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 220 220 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION & WITH GROUP ASPECTS 275 MUSICPLC (ADAPTED) This scenario relates to four requirements. Music pic is the holding company for a group of companies. The group structure is as follows: Music pic | | 80% 100% 100% 45% 100% Alto Ltd Bass lid Cellotid Drum Ltd Echo Inc I Gong Lad Musk pic's shareholding in Bass Ltd was disposed of on 341 December 2022, snd the shareholding in Cello Ltd was acquired on 1 January 2023. The other shareholdings were sll hold throughout the year ended 31 March 2023. Echo Inc is resident overseas. The other companies are all resident in the United Kingdom, For the year ended 31 March 2023 Music pic had-a tax adjusted trading profit of £92,000, During the year Music pic received dividend income of £15,000 from an unconnected company, benk interest of £12,000 and a dividend of £5,400 from Bass Ltd, As at 31 March 2022 Music pic had unused capital losses of £32,000. On 5 January 2023 the company solda freehold office buikding, and this resulted in a further capital loss of £65,000. Ako Ltd sold s freehold warehouse on 10 March 2023, and this resulted in @ capital gain of £120,000. An election has been made so that the gain is treated as Music pic’s gain. Year ending 31 March 2024 Music ple intends to acquire a property which it will rent out for £10,000 per annum. The company will take out a new non-trade related bank loan of £100,000 at an annual Interest rate of 10% to partly fund the acquisition. Legal fees in connection with acquiring the property will be £300. Required: {a} State, giving appropriate reasons, which companies in the Music ple group of companies form a group for capital gains purposes. El {b) (5 marks) Explain why Music pk has five related 51% group companies for the purposes of adjusting the sugmented profits threshold for the year ended 31 March 2023. & Your answer should identify the five related companies, {<}. (5 marks) Calculate Music pic's corporation tam liability for the year ended 31 March 2023. (2 marks) (4) Explain how the interest costs, legal fees and rent receivable will be treated for tax purposes if Music pic acquires a property in the year ended 31 March 2024. Sl {3 marks) {Total: 15 marks} KAPLAN PUBLISHING i753 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 221 221 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK> TAXATION 276 (FA2022) JUMP LTO (ADAPTED) This scenario relates to four requirements. Jump Ltd's summarised statement 31 March 2023 Is as follows: of profit or loss for the three-month period ended Note £ Revenue £ 264,300 Operating expenses Depreciation 8,100 Employae costs 1 129,700 Lease of car 2 1,200 Professional fees Other expenses 3 4 7,800 202,800 {405,600} Operating loss (144,700} Bank interest receivable o Lass before taxation (144,700} Note 1— Employee casts Employee costs are as follows: £ 3,400 Employee training courses Employee pension contributions paid 11,600 Cost of annual staff party {for eight employees) 1,500 Balance of expenditure (all allowable) 173,200 189,700 Note 2- Lease of car The lease is in respect of 2 car with CO2 emissions of 99 grams per kilometre. Note3 — Professional fees Professional fees are as follows: £ Accountancy Logal fees in connection with the issuc of share capital 2,200 3,800 Legat fees in connection with the renewal of a 20-year property lease 3,800 7,300 174 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 222 222 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 Note 4 = Other expenses Othar expenses are as follows: £ Entertaining UK customers Entertaining overseas customers Political donations 1,700 790 800 Balance of expenditure (af allowable) 199,510 202,800 Additional information Plant and machinery On I January 2023, the tax written down values of Jump Ltd’s plant and machinery were as follows: £ Main pool Special rate pool 12,100 5,700 The following cars were sold during the three-month period ended 31 March 2023: Date of sale Proceeds £ Original cost £ Cari 7 January 2023 9,700 9,300 Car 2 29 March 2023 6,100 13,200 The original cost of car 1 was added to the special rate pool when it was purchased, and the original cost of car 2 was added to the main pool when it was purchased. Previous results Jump Ltd's results for its two previous periods of trading are as follows: Year ended 31 May 2022 Tax adjusted trading profit Bank interest recenvable Period ended 31 December 2022 E £ 78,600 42,400 1,200 0 Group companies dump Ltd owns 80% of the ordinary share capital of Hop Ltd anc 60% of the ordinary share capital of Skip Ltd. Hop Ltd commenced trading on 1 August 2022, and for the eight-month period ended 31 March 2023 has taxable total profits of £63,000, Ship Ltd has: been trading for several years and has tanable total profits of £56,000 for the year ended 32 March 2023. KAPLAN PUBLISHING i175 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 223 223 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Required: (a) Calculate Jump Ltd's tax adjusted trading loss for the three-month period ended 31 March 2023. 2 Notes: 1 2 Your computation should commence with the operating loss figure of £244,700, and should list all of the items referred to in notes 1 to 4, indicating by the use of zero (0) any items which do not require adjustrnent. You should assume that the cornpany claims the maximum available capital allowances. (b) 1 {10 marks) State ONE factor which will influence Jump Ltd's choice of loss relief or group relief claims. GI 2 (1 mark) Advise Jump Ltd as te the maximum amount of its trading loss which can be relieved againstits total profits for the year ended 31 May 2022 end the sevenmonth period ended 31 December 2022. oO 3 {2 marks) Advise Jump Ltd as to the maximum amount of its trading loss which can be surrendered as group relief. =} (2 marks) (Total: 15 marks) 277 ASHLTO (ADAPTED) we Walk in the footsteps ofa top tutor This scenario relates to four requirements. You are @ trainee chartered certified accountant assisting your manager with the tax affairs of three unconnected limited companies, Ash Ltd, Beech Ltd and Cedar Ltd. Ash Ltd Ash Ltd was incerporated in the UK on £ December 2020 and immediately opened a non- interest bearing bank account, The company commenced trading on 1 February 2021, preporing its first accounts for the 14-month period ended 31 March 2022, Accounts were then prepered for the year ended 31 March 2023. At the date of incorporation, ail three of Ash Ltd's directors {who each own one-third of the compearry’s ordinary share capital) were based in the UK. However, on 1 October 2022, two of the directors moved overseas. The directors have always held Ash Ltd's board meetings in the UK, and will continue to do so despite two of them moving overseas. 176 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 224 224 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 Beech id Beech Ltd's summarised statement of profit or joss for the year ended 31 January 2023 is as follows: Note Gross profit £ 565,800 Operating expenses Depreciation {14,700} Gifts and donations Impairment loss Leasing costs 1 2 3 (4,600) (3,700) {£2,600} Other expenses 4 (217,700} Finance costs Interest payable 5 {7,000} Profit before taxation 305,500 Note 1 ~ Gifts and donations Gifts and donations of £4,500 comprise: E Gifts to customers {pens costing £70 each and displaying Beech Ltd's name} Qualifying charitable donations 3,500 1,100 4,600 Note 2 - impairment loss On 31 January 2023, Beech Ltd wrote off an impairment loss of £3,700 relating to a trade debt, This was In respect of an invoice which had been due for payment on 15 October 2022, Note 3 - Leasing costs The leasing costs of £12, G00 are in respect of four car leases which commenced on 1 February 2022. Esch of the four leased cars has CO, emissions of 60 grams per kilometre. Note 4 ~ Other. expenses The other expenses of £217,700 inchide a fine of £6,400 for a breach of data protection law, and legal fees of £5,700 in connection with the renewal of a 15-year property lease. The remaining expenses are all fully allowable. Note 5— Interest payable The interest payable of £7,000 is in respect of the company's 4% Joan notes which were issued on 1 huly 2022. Interest of £6,000 was paid on 31 December 2022, with an sccrual of £1,000 provided for at 31 January 2023. The loan notes were issued in order to finance the company’s trading activities, Capital allowances No capRal allowances are avaitable for the year ended 31 January 2023, KAPLAN PUBLISHING i177 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 225 225 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) Cedar Ltd Cedar Lid is 3 100% subsidiary company of Timber Ltd. The following information is available in respect of the two companies for the year ended 31 March 2023: 1 For the year ended 31 March 2023, Cedar Lid made a trading loss of £19,700, 2 On 28 December 2022, Cedar Ltd sold its entire shareholding of 25,000 £1 ordinary shares in Forest plc for £6.00 per share, Cedar Lid had originally purchased 20,000 shares in Forest pic on 3 July 2010 for £24,800. On 20 July 2010, Forest pic made a 1 for 4 rights issue. Cedar Ltd took up its allocation under the rights issue in full, paying £1.15 for each new share meucd. The indexation factor from July 2010 to December 2017 Is 6.2.44, 3 For the year ended 31 March 2023, Timber Ltd made: Trading loss £ 20,800 Capital loss 8,300 There is no possibility of Cedar Ltd or Timber Ute offsetting their trading losses against prior year profits. The group has a policy of utilising losses at the earliest opportunity, Required; (a) (i) Identify Ach btd's accounting periods throughout the period 1 December 2020 to 31 March 2023, fal (i) (b) (2 marks) Explain Ash Ltd's residence status throughout the seme period. (2 marks) Calculate Baech itd’s carporation tax liability for the year ended 31 January 2023. ae Note: Your computation should commence with the profit before taxation figure of £305,500, and should also Hist all of the items referred to In notes 1 to 5, indicating by the use of zero (0) any items which do not require adjustment. (c} (6 marks) On the basis that all available claims and elections are made, calculate Cedar Ltd's taxable total profits for the year ended 31 March 2023, i {5 marks) (Total: 15 marks) 178 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 226 226 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 278 CLUELESS LTD (ADAPTED) & (8) CORPORATION TAX QUESTIONS: SECTION 4 Watk in the footsteps of o top tutor Thisscenorio relates to one requirement. You are a trainee accountant and your manager has asked you to correct a corporation tax computation that has been prepared Dy the managing director of Clueless itd, a company which manufactures children’s board games The corporation tax computation is for the year ended 31 March 2023 and contains a significant number of errors: Queless Ltd - Corporation tax computation for the year ended 31 March 2023 é Trading profit (working 1) war interest received (working 2) Chargeable gain (working 3) 470,192 32,100 50,000 $52,292 Dividends received (warking 4} 28,700 580,992 Corporation tax [£580,992 x 19%} 110,388 Working 1 - Trading profit £ Profit before taxation Seprecation Cent entertaining Qualifying charitable donations paid Gifts to custorners: portable power banks and displaying Clhoeless Ltd’s name {£10 each) ~ boxes of chocolates displaying Cluefess Ltd's name |£15 each) Capital allowances (working S) Trading profit 382,610 15,740 400 900 920 1,650 67,972 470,192 Working 2— Loan interest received Loan interest receivable Accrued at 1 April 2022 Accrued at 31 Merch 2023 Loan interest received £ 32,800 10,600 {11,300) 32,100 The loan was made for non-trading purposes. KAPLAN PUBLISHING 179 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 227 227 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) Working 3— Chargeable gain The gain relates to the sale ofa building to an unconnected party for £200,000 on 1 March 2023. The office had been acquired by Clever Ltd (a 100% UK subsidiary) for £70,000 on 1 April 2003. Clever Ltd had sold the bullding to Clueless Ltd on 1 June 2011 for £150,000, which was its market value at that date, Working 4— Dividends received £ From unrelated companies 20,700 From Clever Ltd (a 100% UK subsidiary company) 8,000 Dividends received 23,700 Working 5 — Capital allowances TWOV b/f Malin pool Car £ £ Spedal rate pool £ 12,400 Allowances é 13,500 Additions New computers New car 42,300 Qualifying for super 72,110 11,800 deduction x 130% AIA Disposal proceeds (72,110) 71,110 (9,300) 4,200 Balancing allowance (4,200) WDA (18%) TWDV ¢/f (2,124) x 50% 0 (4,200) 1,062 9,676 Total allowances 67,972 Notes: 4 = The car has a CO; emission rate of 145 grams per kilometre, This car is used by the sales manager and 50% of the mileage is for private journeys. 2 180 All of the items included in the special rate pool at 1 April 2022 were sold for £9,300 during the year ended 31 March 2023: The original cost of thece items was £16,200, KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 228 228 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION 4 Required: Prepare a corrected version of Cluciess Ltd’s corporation tax computation for the year ended 31 March 2023. You should indicate by the use of zero any items in the computation of the trading profit for which no adjustment is required, The indexation factors are: (b} April 2003 to June 2012 0,298 April 2003 to December 2017 0.535 June 2011 to December 2017 0.182 (11 marks) This scenario relates to two requirements. The managing director of Clueless Ltd understands that the company has to file Its selfassessment corporetion tax returns online, and that the supporting accounts and tax computations have to be filed using the inline eXtensitle Business Reporting Language (XBRL). The managing director & interested in the options regarding haw the company can produce documents in this format. Required: 1 State the date by which Clueless Ltd's self-assessment corporation tax return for the year ended 31 March 2023 should be filed, Sl 2 Explain the options aveilable to Clueless Ltd regarding {1 mark) the production accounts and tax computations in the XBRL format. QR of (3 marks) (Total: 15 marks} 279 LONG LTD AND ROAD LTD (ADAPTED) lee Wolk in the footsteps of a top Tutor (a) ‘This scenario relates to one requirement. Long Ltd owns 100% of the ordinary share capital of Road Ltd, Long Ltd and Road Ltd are both trading companies. Long Lid’s shareholding in Road Ltd was acquired on 15 January 2022 when that company was incorporated. Long Ltd has prepared accounts for the year ended 31 March 2023, whilst Road Ltd has prepared accounts for the period 1 January 2023 {when the company commenced trading} to 31 March 2023. The following information is available: Long Ltd 1 The operating profit for the year ended 31 March 2023 is £334 400. Depreciation of £43,050, amortisation of £5,000 and leasing costs of £3,600 have been deducted In arriving at this figure. The amortisation relates to a premium which was paid on 1 August 2018 to acquire 4 leasehold office building on a 20-year lease. The arnount of premium assessed on the landlord as income was £68,200, The office building was used for business purposes by Long Ltd throughout the yeer ended 31 March 2023, The leasing costs relate to a car with a CO2 emission rate of 82 grams per kilometre, which was leased from 1 April 2022. KAPLAN PUBLISHING 181 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 229 229 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) 2 On 1 April 2022, the tax written down value of the plant and machinery mein pool was £44,900. On 10 june 2022, Long Ltd purchased a new lorry for £36,800 anida new car for £15,700. The car has a CO, emission rate of 42 grams per kilometre. The car is used by the managing director of Long Ltd, and 40% of the mileage is for private journeys. 3 On 1 February 2023, Long Ltd disposed of 6 2% shareholding in an unconnected company. The disposal resulted ina capital boss of £21,300. Road Ltd 1 The operating loss for the three-month period ended 31 March 2023 is £26,100, Donations of £2,200 have been deducted In arriving at this figure, Tha donations consist of political donations of £400, and qualifying cheriteble donations of £2,400. 2 On 3 October 2022, Road Ltd purchased a car for £11,600. The car has zero CO2 emissions. 3 For the three-month period ended 31 March 2023, loan Interest receivable was £4,300. The loan was made for non-trading purposes. “4 On 18 March 2023, Road Lid disposed of a 1% shareholding in an unrelated compony. The disposel resulted in a chargeeble gain of £29,800. This figure is after taking eccount of indexation. Other information Road Ltd is not expected to be profitable for the foreseeable future, and Long Ltd and Road Ltd claim maximum possible group relief where group relief is available. Required: On the assumption that any available reliefs are claimed as soon as possible, calculate the corporation tax liability of Long Ltd for the year ended 31 March 2023, and of Road itd for the three-month period ended 31 March 2023. Bi = {12 marks) (b) This scenario relates to one requirement. Road Ltd's recently appointed bookkeeper understands that the company must report PAYE information to HI Revenue and Customs in real time. However, the bookkeeper does not know how PAYE real time reporting works in practice. having prevausty only produced payroll manually. Road Ltd pays Its employees at the end of each calendar month, with some employees receiving taxable benefits. Road Lid has chosen not to tax the benefits through the payroll system. Required: Explain how and when Rood Ltd will have to report real time PAYE information to HM Revenue and Customs, and state what forms, If any, will have to be provided to employees or submitted to HM Revenue and Customs following the end of the tax year. El (3 marks) (Total: 15 marks) 182 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 230 230 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE CORPORATION TAX QUESTIONS: SECTION & 280 LENALTD, MEKONG LTD AND NILE LTD This scenario retates to five requirements. You are 8 trainee chartered certified accountant assisting your manoger with the tax effairs of three unrelated limited companies, Lena Ltd, Mekong Ltd and Nile Ltd. Lena Ltd Lena Ltd commenced trading on 1 October 2022, repstering for value added tax (VAT) from the same date. The company purchased the following vehicles during the six-month period 1 October 2022 to 31 March 2023: i 2 3 On 1 October 2022, Lena Lid purchased a new car for £54,000 {including VAT of £9,000), The car has zero CO; emissions. tt is used by the managing director, and 60% of the mileage |s for private journeys. Oni Novernber 2022, Lena Ltd purchased four new lorries fora total cost of £763,000 {including VAT of £128,000). On 2 February 2023, Lena itd purchased a new car for £30,000 (including VAT of £5,000), The car has CO; emissions of 30 grams per kilometre. It is used by the sales rector, and 40% of the mileage Is for private journeys. The full annual investment allowance is available to Lena Lid. Mekong Ltd Mekong Ltd was incorporeted overseas [outside of the UK) on 1 April 2013, The following information relates to Mekong Ltd’s UK residence status: 1 —s From A April 2013 to 31 March 2017, all four of Mekong Ltd's directors (who each own 25% of the company’s ordinary share capital) were based overseas. During this period, the directors of Mekong Ltd held their board meetings overseas. 2 From 1 April 2017 to 31 March 2023, all four of Mekong Ltd's directors were based in the UK, During this period, the directors of Mekong Ltd held their board meetings in the UK. For the year ended 31 March 2023, Mekong Ltd has taxable total profits (before taking account of any group relief claims) of £980,000. Mekong Ltd owns shares inthree UK resident companies, af of which have made trading losses. The following infcrmation Is available; Company Percentage Accounting period shareholding Thames Ltd 100% Zambezi Ltd 85% Yangtze itd 40% Trading loss Year ended 31 March 2023 £72,600 Two-month period ended 31 May 2022 £17,000 Year ended 31 May 2023 Year ended 31 March 2023 £106,800 £44,400 Al of the trading losses are current year losses, being generated in the accounting periods listed above. KAPLAN PUBLISHING 183 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 231 231 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) Wile itd For the years enced 31 March 2021, 2022 and 2023, Nile Ltd had the following taxable total profits and received the following dividends from non-group companies: Taxable total profits | Dividends ; Yearended 32 March 2023 £802,000 £11,000 Year ended 31 March 2022 £744,000 | Yearended 31 March 2023 £378,000 | £24,000 £13,000 Prior to 31 December 2020, Nile Ltd did not have any 51% group companies. On 1 January 2021, Nile Ltd acquited'a 60% sharcholditig in Pond Ltd. For the year ended 31 March 2023, Nile Ltd made quarterly instalment payments in respect of its corporation tax liability, with the first three instalment payments for the year totalling £101,200. Required: {a} «Calculate the maximum capital aBowances available to Lena Lid for the six-month period ended 31 March 2023. (5 marks) (b) «(i «= Explain why Mekong Ltd would have been treated as not resident in the UK for the period 1 April 2013 to 31 March 2017, but resident in the UK for the period 1 April 2017 to 31 March 2023. (1 mark) (i) «= Calculate the maximum amount of group relief which Mekong Ltd can claim against its taxable total profits for the year ended 31 March 2023. (4 marks) (ce) (i) «= Explain why Nile Ltd was required to pay corporetion tax by quarterly instalments for the year ended 31 March 2023, but not for the year ended #1 March 2022. (3 marks) (i) Calculate the final quarterly instalment payment which should be made by Nile Ltd for the year ended 31 March 2023, and state when thisis due. (2 marks} (Total: 15 marks) 184 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 232 232 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 Section 5 PRACTICE VALUE ADDED TAX QUESTIONS PRACTICE SECTION A OBJECTIVE TEST QUESTIONS 281 Cho begen trading as a sole trader on 1 January 2023 but did not register for VAT when he commenced to trade. He has made the following sales so far In 2023, all of which are standard-ratec: £ 2,000 3,500 January February March 4,000 April 3,200 May 1,400 june July August $0,000 5,000 4,000 Al of the sales in June relate to en order which was received on 1 June for goods to be delivered by 30 June. When must Cho notify HMAC that he is required to register for VAT, and when must he start charging VAT to his customers? Notify Charges VAT from KAPLAN PUBLISHING 30 June 2023 20 July 2623 iJune 2023 A B 1 August 2023 c 0 ias https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 233 233 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK> TAXATION 242 (FA2022) «September/December 2020. OT question Brett commenced trading on 1 February 2022. His sales {exchusive of VAT) were £5,500 a month for the first three months of trading, £7,500 for the next four months and £10,000 .a month after that. From what date will Brett have to charge output VAT on his supplies? 283 4 1 March 2023 8 1 January 2023 c 30 January 2023 0 1 Febeuary.2023 Betty, a retailer, decides to voluntarily register for VAT. Which TWO of the following statements, concerning supplies made to Betty before the date of VAT registration, are TRUE? A Batty can reclaim input VAT on a car that she purchased six months ago, which che still uses for bath private and business purposes 8 Betty cannot reclaim input VAT on the petrol used in her car, for both private and business purposes, in the month prior to the date of VAT registration € Betty can reclaim input VAT on.avan purchased for the business two years ago which she still uses in the business oC Batty can reclaim Input VAT on accountancy services she purchased one year ago in conmmection with setting up the business E — Batty can reclaim input VAT on the cost of goods bought for resale two months ago, which shé sold the week before registration 284 «Fergus owns shares in.a number of companies as set out below. Pr 75% Altd 100% B Ltd a Citd D Sarl (French Company) 0 Sarl’s only place of business is in France. Tick the appropriate box(es} to show which of the above companies can be ina VAT group. Can be in VAT group | Ltd | BLtd | Cltd D Sari 186 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 234 234 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION 5 September 2015 OT question Yul commenced trading on 1 April 2022, and registered for value added tax {VAT} from lJanuary 2023. Her first VAT return is for the quarter ended 31 March 2023. During the period 1 Aprit 2022 to 31 March 2023, Yui incurred input VAT of £110 per month in respect of the hire of office equipment. How much input VAT, in respect of the office equipment, can Yui reclaim on ber VAT return for the quarter ended 31 March 2023? A £660 B £990 Cc £330 BD £1,320 Vikram ceased trading on 17 June 2022, For each of the following statements concerning his responsibilities in relation to VAT select whether it is true or false: True False Vikram should have notified HMM Revenue and Custorns that he had ceased to moke taxable supplies by 30 July 2022. Vikram must account for output tax on the value of noncurrent assets and inventory held at the date of deregistration and on which a deduction for input tax has previously been claimed, unless this would result in a fability below £83,000. Padma Ltd recelved sn order for goods on 20 October 2022, The goods:were delivered to the customer on 20 December 2022 and Padma Ld sent the invoice for £1,000 on 15 January 2023, which the customer paid on 5 February 2023. What is the tax point of the transaction for VAT? A 2M October 2022 B 20 December 2022 c 15 January 2023 Ds 5 February 2023 Barney ts YAT registered and only makes standard-rated supplies. On 31 March 2023 he wrote off two irrecoverable debts in his VAT account The first for £800 (VAT-indusive) was due for paymention1 June 2022 and despite being chased has still not been peld. The second for £1,000 (VAT-inclusive} relates to a company that Barney has recently been informed has gone into liquidation. The debt was due for payment on 1 December 2022. How much input VAT will Barney be able to recover, in respect of the irrecoverable debts, in his VAT return for the quarter to 31 March 20237 € KAPLAN PUBLISHING ia? https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 235 235 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 239 «= June 2045 OT question Violet Ltd provides one of its directors with a company car which is used for both business and private mileage: For the quarter ended 31 March 2023, the total cost of petral for the cat was £600, of which 30% was for private use by the director. The relevant quarterly scale rate is £364. Both these figures are inclusive of value added tax (VAT). What output VAT and input VAT entries will Violet Ltd include on its VAT return for the quarter ended 31 March 2023 in respect of the company car? A 8 € D 290 Output VAT of £61 and input VAT of £73 Output VAT oF £0 and input VAT of £73 Output VAT of £0 and input VAT of £100 Output VAT of £61 and input VAT of £100 West Ltd is registered for VAT and makes standard-rated suppies. The company incurs the following costs: 1 = £650 [(VAT-inclusive) on entertaining new suppliers based In France 2 £3,000 [VAT-inclusive} on car leasing costs. The car has CO, emission of 120 grams per kformetre and is used bya director for both private (20% of the time) and business PUrpOSeS, How much input VAT can the company recover on the above costs? Entertaining suppliers CoE Neer 291 £0 £108 £100 A B £250 c 0 December 2016 OT question Emil is registered for value added tax (VAT). Forthe quarter ended 31 March 2023, the input VAT incurred on his purchases and expenses induded the following: £ Entertaining overseas customers 320 Purchase of new office equipment 1,250 Purchase of a new car for business and private use by one of Emil's employees 3,000 What it the amount of input VAT recoverable by Emil in the quarter ended 31 March 2023 In respect of the entertaining, office equipment and car? 188 A £1,250 6 £320 c £1,570 DBD £4,570 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 236 236 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION 5 282 Tobias & VAT registered and only makes standard-rated supplies. In the quarter to 34 March 2023 he had the following transactions: 1 Sales of£30,000 and purchases of goods for resale of £16,800. doth figures are VAT- inclusive. 2 He gave samples of his products to a potential customer which he woukd normally sell for £100 (VAT-exclusive), How much VAT is payable by Tablas for the quarter ended 31 March 2023? £ Blessing is VAT registered. In the quarter to 31 March 2023 Blessing’s accounts include the total cost of fuel for her car, which she uses 20% for private purposes, of €1,200 |VAT-inclusive}. Tha relevant VAT scale rate for the car is £409. How much net VAT (i.e. outpat VAT less input VAT) is reclaimable by Blessing for the quarter ended 31 March 2023 in respect of the fuel for her car? A £200 B £158 € £132 Db £88 For each of the following statements concerning simplified VAT invoices select whether it is true or false. True Fake The date of the supply s not required ona simplified VAT invoke, A description of goads and services is required oma simplified VAT invoice. Asimplited VAT invoice can be provided when the consideration for the supply is less thar £1,000. The amount of VAT payable on the supply is not required on & simplified YAT invoice. KAPLAN PUBLISHING i849 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 237 237 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION 295 (FA2022) Having always filed VAT returns on time, Chimney Ltd's VAT return for the quarter ended 31 October 2022 was submitted on 13 December 202? along with the VAT due, For the quarter ended 31 January 2023 the return and VAT of £26,000 was filed on 23 March 2023. What are the VAT consequences when the 31 January 2023 VAT return is filed ate? A A surcharge hability period will run for the 12 months until 31 January 2024 but no penalty will be charged A surcharge liability period will run for the 12 months until 31 January 2024 and a penalty of £520 will be charged A surcharge liability period will run for the 12 months until 23 March 2023 but no penalty will be charged A surcharge liability period will run for the 12 months until 23 March 2023 ands penalty of £520 will be charged 296 For the VAT quarter ended 30 June 2022 Beach Ltd has s taxable turnover of £380,000. It subsequently finds it has under-declared output tax of £8,000 on its VAT return for that quarter. How must Beach Ltd notify HM Revenue and Customs (HMRC) of the error and what are the consequences for Beach Ltd? You may tick more than one box. Correction of error and Beach Ltd can correct Beach Ltd must the error on the neat separately notify VAT seus HMREof thes enrur Beach Ltd will be charged a penalty for an incorrect VAT return Beach Ltd will be Charged default interest 297 September 2016 OT question Triangle Led is registered for volue added tax (VAT] and uses the annual accounting scheme. For the year ended-31 December 2022, the net VAT payable by Triangle Ltd was £73,500. For the year ended 31 December 2021, the net VAT payable by Triangle Lid was £47,700. What monthly payments on account of VAT must Triangle Ltd make in respect of the year ended 31 December 2022 prior to submitting its VAT return for that year? A Nine monthly payments of £7,350 8 Nine monthly payrnents of £4,770 c Ten manthly payments of £4,770 o Ten monthly payments of £7,350 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 238 238 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION 5 288 For each of tha following statements concerning the VAT cash accounting scheme select whether it is true or false: True False Input tax cannot be clalmed until the invoice is paid which dolays recovary of input VAT Traders using the scheme do not have to pay output VAT to HMAC until they receive it from customers To join the scheme the trader’s expected taxable turnover (excluding VAT} forthe next twelve months must not exceed £156,000 The cash accounting scheme cannot be used where a trader issues an invoice in advance of supplying goods 299 For the quarter ended 31 March 2023, Zane had standard-rated sales of £62,400 and exempt sales Of £10,000, Zane had standard-rated expenses of £29,900, Both figures are exclusive of value added tax (VAT]. Zane uses the flat rate scheme to calculate the amount of VAT payable, with the relevant scheme percentage for her trade being 11%. How much VAT will Zane have to pay to HM Revenue and Customs (HIMIRC) for the quarter ended 31 March 2023? 300 A £7,984 B £3,575 Cc £6,500 BD £9,337 December 2018 OT question Adce |s registered for VAT and caiculates ber VAT liability based on the flat rate scheme. The relevant flat rate percentage for Alice's business is 10%. For the year ended 31 March 2023, Alice’s sales [exclusive of VAT} were: £ Standerd-rated sales Zero-rated sales Exempt sales 50,000 20,000 5,000 What amount of VAT is payable by Alice to HM Revenue and Customs (HMAC), in respect ofthe year ended 31 March 2023? A £8,500 aR £3000 c £7,500 BD £6,000 KAPLAN PUBLISHING 191 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 239 239 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK; TAXATION 303 (FA2022) Marina is a UK VAT registered trader making only standard-rated supplies. She purchased goods worth £10,000 [VAT-exclusive} from a trader situated in Narnia, The gnods would be Classed as standard-rated if they were supplied in the UK. The standard rate in Narnia i 5% What is tho net effect on the VAT position of the UK trader? 302 A £0 8 £2,000 to pay to HM Revenue and Customs € £2,000 to reclaim from HM Revenue and Customs 0 £500topay to KM Revere and Customs September 2019 OF question in which of the following cases must an appes! be made directly to the Tribunal? 182 A A company appealing against apenalty far late filing of @ corporation tax return B Accompany appealing against. a penalty for late filing of employer year end returns c An Individual appeating against 3 penalty forlate registration far value added tax (VAT) oD An individual appealing againsta penalty for late payment of capital gains tax KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 240 240 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION 5 PRACTICE SECTION 8 OBJECTIVE TEST CASES 303 ‘THIDAR (ADAPTED) You should assume that todsy’s date is 25 April 2023. Thidar commenced trading o5 a builder on 1 Jonvary 2022. She voluntarily registered for value added tax (VAT) on 1 January 2022. Sales Thidar’s sales for the first 1S months of trading have been: Month Standard-+rated Zerovated Month Standard- Zero-rated rated £ 1 E 3,400 E £ Q 9 8,800 6,300 7,300 2 0 1,900 10 2,900 3 5,700 2,100 u 0 0 4 5 6 7 6,300 9,500 7,900 0 0 1,200 2,200 3,700 12 13 14 15 6 2,600 3,200 22,200 2,600 800 1,700 3,600 3 12,100 0 Pre-registration expenditure Thidar paid for the following standard-rated services prior to registering for VAT on 4 January 2022: Date Costofservice Description E 10 June 2021 $ December 2021 1,800 300 Advertisement for the bullding business Advertisement for the building business Both figures are exclusive of VAT. Thidar paid for the advertisement of £300 by cash, and she does not have any evidence of this transaction (such as a VAT mwolce). VAT return for the quarter anded 30 September 2022 Thidar’s VAT return for the quarter ended 30 September 2022 was filed by the submission deadline of 7 November 2022 and the related VAT liability was paid on time. However, On 15 Februsry 2023, Thidar discovered that the amount of VAT paid was understated by £1,200 as a result of incorrectly treating a standard-rated sale as zero-rated, Given that the underpayment docs not ¢xceed £10,000, Thidar is permitted to correct this erroe on her VAT return for the quarter ended 34 March 2025, end this is what she will do. Thicdar will file this VAT return by the submission deadline of 7 May 2023 and pay the related VAT Hability (including the underpaid £1,200) on time. KAPLAN PUBLISHING iss https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 241 241 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) VAT return for the quarter ended 31 March 2023 Thidar is currently completing ber VAT return for the quarter ended 31 March 2023 and is unsure as to how much input VAT is non-deductible in respect of two items: During the quarter ended 31 March 2023, Thidar spent £800 on entertaining UK customers. During the quarter ended 31 March 2023, Thidar leased a car at a cost of £700. The car is used by Thidar and 75% of the mileage is for private jourmeys. Both figures are exclusive of VAT. A Month 14 B Month 15 c Month 13 3 Not yet exceeded What amount of pre-registration Input VAT was Thidar able to recover in respect of expenditure incurred prior to registering for VAT on 1 January. 2022? Ft 2 In which month did Thidar exceed the VAT threshold for compulsory registration? £360 2 1 £60 on £420 2 £0 Within what period must Thidar issue a VAT Invoice after making a standard-rated supply, and for how long must these VAT invoices then normally be retained by Thidar? 4 VAT invoices Retentton A Within 14 days Four years B Within 30 days Six years C = Within 30 days Four years DB Six years Within 14 days Why will VAT default {or penalty) interest not be charged on Thidar’s underpayment of VAT of £1,200 for the quarter ended 30 September 2022? A Because Thidar corrected the error within 12 months B Because the error was not deliberate Cc Because separate disclosure of the VAT underpayment was not required D Because Thidar paid the underpayment-of £1,200 by the submission deadline of 7 May 2023 194 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 242 242 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE 5 VALUE ADDED TAX QUESTIONS: SECTION § For the quarter ended 31 March 2023, what is the amount of non-deductible Input VAT in respect of entertaining UK customers and the leasing cost of the car? Entertaining UK customers Leasing cost A £0 £105 8 £350 £308 c £150 £70 D £0 E7G 304 CANDY APPLE AND SUGAR PLUM HIESE (ADAPTED) fee Wafk in the footsteps of a top tutor answer debries Cancy Apple Candy Apple began a trading business on 1 April 2022. Her sales since the commencernent of trading have been as follows: April to July 2022 £10,500 per month August to November 2022 December 2022 ta March 2023 £14,400 per month £21,500 per month These figures gre stated exclusive of value added tax (VAT|, Candy's sales are all standardrated and arise evenly over the month. As her accountant you have advised Candy in writing that she should be registered for VAT, but she has refused to register because she thinks her net profit is mouffkient to cover the additional cost which would be incurred, Sugar Plum Sugar Plum began trading on 1 April 2022 and registered for VAT on 1 May 2022 to avoid late registration penalties. The following information is available in respect of Sugar Phim's VAT for the quarter ended 31 July 2022; I Invoices were issued for standard-rated and zero-rated sales of £53,700 and £23,100 respectively. These figures are exclusive of VAT, 2 Sugar uses a room at her home as her office. The house has seven main rooms. The VAT charged on the electricity bill for the whole house for the quarter 5 estimated as £49, During the quarter, Sugar also purchased several items of furniture for her office for a total of £1,500 exclusive of VAT. A 5% discount was applied to this amount as Sugar had purchased two items ar meee. 3 Prior to starting business, Sugar engaged a consultancy firm to undertake some market research. Sugar paid the consultsncy firm £250 on 1 August 2021 and £375 on 1 January 2022. Sugar also purchased £2,500 worth of Inventory on | January 2022, of which £1,000 was unsold by 1 May 2022. These figures are exclusive of VAT KAPLAN PUBLISHING 195 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 243 243 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION 1 {FA2022) From what date was Candy Apple compulsorily required to charge VAT on her taxable supplies and by whst date must she notify HM revenue and customs that she is required to register for VAT? Charge VAT from Notity 1 November 2022 1 December 2022 33 October 2022 4 8B 30 Novernber 2022 Cc D For each of the following statements concerning the consequences of late VAT registration select whether Kt Is true or false: True False A default surcharge penaity will be charged for late registration Candy must account to HM Revenve and Customs for output tax et 20/120 of the value of sales fromm the dste that she should have been registered from Candy must issue VAT Invoices charging her customers Hie VAT that she should have charged on sales from the date she should have been registered by What ts the amount of output VAT payable by Sugar Plum in respect of her sales for the quarter ended 34 July 20227 What is the amount of input VAT dalmable by Sugar In respect of the elactricity and furniture costs for the quarter ended 31 July 2022? A £292 8 £334 c £245 5 £307 What is the amount of Input VAT claimable by Sugar in respect of the consukancy fees and inventory casts incurred prior to the commencement of trade? 196 A £625 B £200 C £325 BD £275 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 244 244 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION 5 305 UTHOGRAPH LTD (ADAPTED) Lithograph Led runs a printing business, and is registered for VAT. Because its annual taxable turnover Is only £250,000, the company uses the annual accounting scheme so that It only has to prepare one VAT return each year. The annual VAT period is the year ended 31 March. Unloge stated otherwise allof the figuras below are exclusive of VAT. Year ended 31 March 2022 The results for the year ended 31 March 2022 include the following: i Standard-rated expenses of £28,000. This includes £3,600 for entertaining overseas customers. 2 On-1 May 2022 Lithograph Ltd purchased.a car costing £28,400 for the use of its managing director. The manager director is provided with free petrol for private mileage, and the cost of this petrol Is included In the standard-rated expenses in Note 1. The relevant annual scale rate is £1,952. Both figures are Inclusive of VAT. 3 During the year ended 31 March 2022 Uthograph Ltd purchased machinery for £24,000, and sold office equipment for £8,000, Input VAT had been claimed when the office equipment was originally purchased, Year ended 31 March 2023 In the year ended 31 March 2023 Lithograph Lid wrote off two debts which were due from customers. The first debt of £4,800 was In respect of an invoice that was due for payment on 31 August 2022. The second debt of £6,400 was in respect of an invoice that was due for payment on 12 October 2022. Both these figures are VAT-inclusive. 1s In which month would Lithograph Ltd have been required to make the first and last payments on account (POA) of VAT in respect of the year ended 31 March 20227 First POA Last POA Apri 2021 May 2021 June 2021 Juby 2024 January 2022 February 2022 March 2022 April 2022 2 @y reference to which VAT Hability were the payments en account for the year ended 31 March 2022 cakulated and by when must the annual VAT return for the year ended 31 March 2022 be submitted ta HM Revenue and Customs? VAT lability Estimated for year ended 31 March 2022 Actual for year ended 31 March 2021 Duedate | 7 May 2022 A B for return | 35 May 2022 c D KAPLAN PUBLISHING 197 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 245 245 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> 3 TAXATION (F42022) How much output tax is payable by Lithograph itd In respect of the Rems 1 ~ 3 included in the results for the year ended 31 March 2022? 4 A £325 B £390 c £1,925 Ds «E4,990 How much input tax is reclaimable by Lithograph Ltd in respect of the iterns 1 - 3 included in the results for the year ended 31 March 2022? 5 306 How much VAT is reclaimable by Lithograph Ltd in the VAT year to 31 March 2023 in respect of the two impaired debts written off? A £1,857 B £2,240 c £960 D E800 ALISA (ADAPTED) ee Walk in the footsteps of a top tutor Alisa commenced trading on 1 January 2022, Her sales since commencement have been as follows: January to April 2022 May to August 2022 September to December 2022 £7,500 per month £10,000 per month £15,500 per month The above figures are stated exclusive of value added tax (VAT). Alisa only supplies services, and these are all standard-rated for VAT purposes. Allsa notified her liability to compulsorily register for VAT by the appropriate deadline. For each of the elght months prior to the date on which she registered for VAT, Alisa peld £240 per month (inclusive of VAT) for website design services and £180 per month (exclusive of VAT) for advertising, Both of these supplies are standard-rated for VAT purposes and ratate to Alisa’s business activity after the date fram when she registered for VAT. After registering for VAT, Alisa purchased a car on 1 Janwary 2023. The car is used 605% for busimess mileage, During the quarter ended 323 March 2023, Alisa spent £456 on repairs to the car and £624 on fuel for both her business and private milesge. The relevant quarterly scale rate 6 £292. All of these figures are inclusive of VAT. All of Alisa’s qustomers are registered for VAT, so she appreciates that she has to issue VAT invokes when services are supplied. 198 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 246 246 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION 5 i From what date would Alisa have been required to be compulsority registered for VAT and therefore have bad to charge output VAT on her supplies of services? 30 September 2022 1 November 2022 2 c 1 October 2022 D 30 October 2022 What arnount of pre-registration input VAT would Alisa have been able to recaver in respect of inputs incurred prior to the date on which she registered for VAT? 3 A £468 B £608 Cc £536 B £456 What is the maximum amount of input VAT which Alisa can reclaim in respect of her car expenses for the quarter ended 31 March 20237 4 How and by when does Alisa have to pay any VAT Rability for the quarter ended 31 March 2023? How the liability is paid Any payment method Due date 5 Electronically 30 April 2023 A 6 7 May 2023 c D Which of the following items of Information ts Alisa required to Include on a valid VAT invoice? You can tick more than ane box. Inchide Tha customer's VAT registration number An invoice number The customer's address A description of the services supplied KAPLAN PUBLISHING i893 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 247 247 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> 307 TAXATION (F42022) THE WHITLOCK SISTERS (ADAPTED) we Wotk in the footsteps of a top tutor Sisters Beth and Any Whitlock trade a3 a partnership, 1 The partnership has been registered for VAT for many years and on i January 2023 it began using the flatrate scheme to calculate the amount of VAT payable. The relevant flat rate scheme percentage for the partnership's trade is 13%, For the quarter ended 31 March 2623 the partnership had standard-rated sales of £50,000 and exempt soles of £10,000, For the same period standard-rated expenses emounted to £27,300. All figures are stated inclusive of VAT. The partnership has two private rooms in its premises that can be hired by customers. Such customers can book the rooms up to two months it advance, at which time they have to pay a 25% deposit. An invoiccis then given to the customer on the day after the room hire, with payment of the balance of 75% required within seven days. For VAT purposes, the renting out of the rooms is a standard-rated supply of services. Beth and Amy are planning to make significant changes to the partnership’s accounts payeble and accounts receivable processes and plan to take key suppliers and clients out for dinner to explain the changes. The VAT-inclusive cost of this in the quarter to 30 Juné 2023 will be as follows: UK customers £250 UK suppiiers £100 Overseas customers Ev75 Overseas suppliers £650 How much VAT is payable by the partnership for the quarter ended 31 March 2023 if the flat rate scheme is used? £5,500 B £4,252 Cc £2,953 DB £7,300 How much VAT would be payable by the partnership for the quarter ended 31 March 2023 if the flat rate scheme was NOT used? KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 248 248 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION 5 3 For each of the following statements conceming the VAT flat rate scheme select whether it is true or false: True False To join the scheme expected taxable turnover [induding VAT) for the next 12 months must not exceed £153,000 The scheme can only be used by small unincorporated businesses A business must leave the scheme if total VAT-inclusive turnover exceeds £230,000 VAT must still be charged on standard-rated sales invoices at the rate of 20% 4 Select the actual tax point date in respect of the 25% depaskt and 75% balancing payment in respect of the roam hire, Dates Deposit Balancing payment When the deposit ls pald Invoice date Day of the room hire When the balance Is paid > £238 w@ £296 7 Whatis the amount of input VAT reciaimable in the quarter to 30 June 2023 on the proposed dinner expenses? £108 9 5 £129 KAPLAN PUBLISHING 201 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 249 249 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 308 KNIGHT LTD (ADAPTED) fe Walk in the footsteps ofa top tutor Knight Ltc is a UK resident trading company. The following information is available in respect of Knight Ltd’s value added tax (VAT). For the quarter ended 31 Merch 2023 Knight Ltd had the fallowirg transactions: (a) Output VAT of £38,210 was charged im respect of sales. This figure includes output VAT of £400 ona deposit received on 29 March 2023, which is in respect of a contract that is due to commence on 20 April 2023. (b) The managing director of Knight Ltd is provided with free fuel for private mileage driven in his company car. The relevant quarterly scale rate is £252. This figure is inchusive of VAT, (ec) Input VAT of £12,770 was incurred in respect of sundry expenses as follows: £ Entertaining UK customers Entertaining overseas customers 210 139 Extending the office building in order to create anew reception area Other sundry expenses {all recoverable} 3,300 9,121 12,770 In the follovang quarter to 30 June 2023, the following infarmation is available in respect of outstanding customer debts: Customer Invoice date Payment due date Output VAT 1 November 2018 30 November 2017 640 Jousting Ltd 1 October 2022 1 November 2021 555 Manon ttd 15 December 2022 31 January 2023 759 £ Armour Ltd All of the above debts have been written off in Knight Ltd's accounts except for the debt due from Jousting Ltd, as Knight Ltd is still hopeful that the debt will be paid. On 1 Juty 2023 Knight Ltd acquired 100% of the shares in Are Ltd and Can Ltd, which are both UK resident VAT registered companies, Knight Utd will make standard-rated supplies to both companies. Knight Ltd was fate in submitting the following VAT returns and in paying the related VAT: Return period VAT due £ 3 months ended 31 December 2020 3 months ended 30 September 2022 20,000 30,060 3 months ended 30 June 2023 21,000 All of the company’s other VAT returns have been submitted on time, and the related VAT liabilities have been paid on time. 202 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 250 250 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION 5 i How much output tax is payable by Knight Ltd for the quarter to 31 March 20237 A = £38,254 B £37,854 C £38,262 D £37,862. 2 How much input tax is recoverable in respect of the sundry expenses incurred in the wes on > quarter to 31 March 2023? £3,260 £12,421 £12,560 £12,631 3 How much relief for impairment losses can Knight Ltd claim in respect of the quarter to 30 June 20237 4 For each of the following statements concerning the VAT groups select whether it is true or false: False True \f Knight Ltd forms a VAT group it will Include both Are Ltd and Can Ltd Standard-cated supplies made by Knight Ltd to other VAT group members will be ignored for VAT purposes Knight Ltd will be the representative. member of the VAT group and will be required to: submit one VAT return for the whole group Each group member will remain llabie for Its share of tha VAT payable S As a result of the lote submission of the VAT return ard late payment of VAT in respect of the three months ended 30 June 2023, what is the total amount of the default surcharge payable, and to when will the surcharge period be extended? Default surcharge end date 30 September 2024 £400. £420 c >) KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 251 251 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 309 ARDENT (ADAPTED) & Woatk in the footsteps of a top tutor Ardent Ltd was incorporated on 1 April 2022 and commenced trading or 2 tsnwary 2023, The company voluntarily registered for valued added tax {VAT] on 1 January 2023, preparing its first VAT return for the quarter ended 31 March 2023. Ardent Ltd’s sales have been as fellows; Standard-rated 2023 Zero-rated £ £ January 24,800 30,100 February 42,600 28,700 March 58,300 22,700 125,700 81,500 Where applicable, the above figures are stated exclusive of VAT. During the period 2 April to 31 December 2022, Ardent Ute incurred input VAT of £120 each month in respect of payments made for advertising services. The company also incurred input VAT totalling £400 (£200 each) In respect of the purchase of two ‘aptop computers on 10 July 2022. One of the laptop computers was scrapped on 30 Novernber 2022 ata nil value, and the other laptop was not used until Ardent Ltd commenced trading on 1 January 2023. During the quarter ended 32 March 2023, Ardent Ltd received standard-rated invoices totalling £56,460 {inclusive of VAT} in respect of purchases and expenses. As at 31 March 2023, £12,400 {inclusive of VAT} of the purchases was unsold and therefore included in myventory. Ardent Ltd wes late insubmitting its VAT return for the quarter ended 31 March 2023, and in paying the related VAT liability. The company currently does not use either the VAT cash accounting scheme or the annual accounting scheme. 1s For each of the following statements concerning Making Tax Digital (MTD) select whether it is true or false: True salsa MID software is used to print out returns which can then be sent to HMRC | ‘The usual VAT return and payment submission dates apply | Although returns are produced automatically, the business | Is stil responsible for cnecking them | The rules apply to all VAT registered businesses, including | those with taxable supplies below the VAT registration threshold 204 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 252 252 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION § 2 What amount of pre-registration input VAT was Ardent Ltd able to recover In respect of the inputs incurred prior to tt registering for VAT on 1 January 2023? Advertising £720 Laptops £200 £400 £1,080 8 D c ‘3 ignoring pre-registration Input VAT, what amount of VAT should Ardent Ltd have paid to HM Revenue and Customs in respect of the quarter ended 31 March 2023? 4 How and by when should Ardent Ltd have filed Rts VAT return for the quarter ended 31 March 2023? 5 A Either by paper or electronicalty by 30 April 2023 B Electronically by 7 May 2023 Cc Electronically by 30 April 2023 D Either by paper or electronically by 7 May 2023 For what petiod after 31 March 2023 will Ardent Ltd need to avoid further defaults in order to revert to a dean default surcharge record, and which VAT scheme may help in avoiding such further defaults? Tick the rebevant box. Period 6 months 12 months Anmial accounting VAT scheme Cash accounting Flat rete KAPLAN PUBLISHING 205 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 253 253 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION (FA2022) PRACTICE SECTION C CONSTRUCTED RESPONSE QUESTIONS 310 GARFIELD (ADAPTED) fe Walk in the footsteps of a top tutor This scenario relates to two requirements. Garfieic nas been taxable supplies in completed his VAT items for which he registered for valued added tax (VAT) since L April 2015. Garfield makes excess of the VAT registration threshold each year. Garfield has previously returns himself, but for the quarter ended 31 March 2023 there are some is unsure of the correct VAT treatment. Garfield's partly completed VAT computation for the quarter ended 31 March 2023 is shown below. All of the completed sections of the computation are correct, with the omissions marked as outstanding (O/S), Note Output VAT Sales (ali standard-rated) £ 22,500 Discounted sale i o/s Equipment 2 o/s Fuel scale rate Input VAT Purchases [all standard-rated) Cer (purchased on 1 January 2023) Equipment impairment losses Entertaining — UK customers — Overseas customers Car expenses 60 (11,200) 4 0 o/5 O0/S 0 o/s 5 o/s 2 3 VAT payable o/s Unless otherwise stated, all of the figures in the following notes are stated exclusive of VAT. Note 1 = Discounted sale On 10 Februsry 2023, @ sales invoice for £4,300 was (issued by Garfield In respect of a standard-rated supply. To encourage this previously late paying customer to pay promptly, Garflelc offered 3 10% discount for payment within 14 days of the date of the sales invoice. The customer paid within the 14-day period This invoice has not been taken into account in calculating the output VAT figure of £22,500, and this is the only sale for which Garfield has offered 3 prompt peyment discount. Note 2— Equipment During the quarter ended 31 March 2023, Garfield acquired same new equipment at a cost of £12,400 from a VAI registered supplier situated overseas. 206 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 254 254 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION 5 Note 3 = Impairment losses On 31 March 2023, Garfield wrote off three impairment losses, Details are as follows: Amount Invoice date £1,400 30 July 2022 Payment due date 29 August 2022 £2,700 12 September 2022 12 October 2022 £1,900 4 October 2022 3 November 2022 Note 4 - Entertaining During the quarter ended 31 March 2023, Garficid spent £960 on entertaining oversens customers. This figure is inchusive of VAT. Note S — Car expenses The car purchased on 1 January 2023 is used by Garfield 60% for business mileage. During the quarter ended 31 March 2023, Garfield spent £1,008 on repairs to the car and £660 on fuel far both his business and private mileage, Both of these figures are inclusive of VAT, Additional information Garfield would like some information on making tax digital (MTD). He is aware the system hes been implernented by HMRC and he would like to know more about it and whether it is relevant to small businesses. Required: {a} Calculate the amount of value added tax (VAT) payable by Garfield for the quarter ended 31 March 2023. Hi (b) (7 marks} Give a brief explanation of Making Tax Digital and state whether it applies to Garfleid’s business. fel (3 marks) (Total: 10 marks} 311 VICTOR STYLE (ADAPTED) This scenario relates to three requirements, Victor Style has been a self-employed hairdresser since 1 January 2020. His sales from the date of commencement of the business to 31 December 2022 were £5,800 per month. On 1 January 2023 Victor increased the prices that he charged customers, and from that date his sales have been £9,500 per month Victor's sales are all standard-rated, Concerned about the registration thresholds, Victor voluntarily registered for VAT on 1 January 2023. As none of hiscustomers are VAT registered, it was not possible to increase prices ary further a5 a result of registering for VAT, Victor’s standard-rated purchases are £400 per month. Where applicable, the above figures are inclusive af VAT, KAPLAN PUBLISHING 207 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 255 255 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK; TAXATION (FA2022) Required: (a) Calculate the total amount of VAT payable by Victor during the year ended 31 December 2023, #2 (3 marks) (tb) Advise Victor why it would have been beneficial to have used the VAT flat rate scheme from 1 January 2023. fl Your answer should include a caiculation of the amount of VAT that Victor would have saved for the year ended 21 December 2023 by joining the scheme. The flat rate scheme percentage for hairdressing for Victor in the year ended 31 December 2023 is 13%. (c) (3 marks) Calculate the effect of the price increase on 1 January 2023 and subsequent VAT registration on Victor's net profit for the year ended 31 December 2023, BE (4 marks) (Total: 10 marks} 312 DENZIL DYER (ADAPTED) This scenario relates to four requirements. Denzil Dyer has been a self-employed printer since 2011, He has recently registered for value added tax (VAT). Denail’s sales consist of printed leaflets, some of which are standard-rated and some of which are zero-rated, He sells to both VAT registered customers and to non-VAT registered customers. Customers making an order of more than E500 are given a discount of 5% from the normal selling price, Ocnzil also offers a discount of 2.5% of the amount payable to those customers that pay within one month of the date of the sales invoice. All of Denzil’s printing supplies are purchased from a VAT registered supplier, He pays by crodit cardand receives a VAT invoice, However, Denzil also purchases various office supplies by cash without receiving amy Invoices. Denzil does not use the annual accounting scheme, the cash accounting scherne or the flat rate scheme, Required: (a) Explain why it is important for Denzil to correctly identity whether a sale is standardrated or whether it is zero-rated. fed (b>) (2 marks) Explain the VAT Implications of the two types of discount that Denail gives or offers to his customers. fl (c} (2 marks) Advise Denzil of the conditions that will have to be met in order for him to recover input VAT, fel You are not expected to list those goods and services for which input VAT is nonrecoverabic. (3 marks) (d) State the circumstances in which Derail is and is not required to issue a VAT invoice, and the period during which such an invoice should be issued. fel (3 marks) (Total: 10 marks) KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 256 256 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION §& 313 SILVERSTONE LTD (ADAPTED) re] Wolk in the footsteps of a top tutor This scenario relates to three requirements, Silverstone Ltd is registered for value added tax (VAT), but currently does not use any of the speda!l VAT schemes. The company has annual standard-rated sales of £1,200,000 and annual stendard-rated expenses of £550,000. Both these figures are exclusive of VAT ard are likely to remain the same for the foreseeable future. Siverstone Ltd is up to date with all of its tax returns, including those for corporetion tax, PAYE and VAT. It is also Up to date with its corporation tax, PAYE and VAT payments. However, the company often incurs considerable overtime costs due to its employees working late in order to meet tax return filing deadlines. Silverstone Ltd pays its expenses on a cash basis, but alows customers two months credit when paying for sates. The company does not have any impairment losses. Silverstone Ud is planning to purchase some new machinery at a cost of £22,000 (exclusive of VAT). The machinery will be purchased fram an overseas supplier. Siverstane Ltd |s nota reguiar Importer and so is unsure of the VAT treatment for this purcnase. Silverstone Ltd ts also planning to start selling goods overseas for the first tme2 and wants to understand how the sales with be treated for VAT purposes. All of these sales will be standard-rated, Required: {a} Explain why Silverstone Ltd is entitled to use both the VAT cash accounting scheme and the VAT annual accounting scheme, and why it will probably be beneficial for the company to use both schemes. El {b) (6 marks) Explain when and how Silverstone Ltd will have to account for VAT in respect of the: fea 1 purchase of machinery, and 2 overseas sales. (4 marks) (Total: 10 marks} 314 TARDY PLC (ADAPTED) of Walk in the footsteps of a top tutor This scenario relates to four requirements. You are a trainee Chartered Certified Accountant, and your firm has recently completed its audit of Tardy pic's financial statements for the year ended 31 March 2023. The company runs an internet-based retail business. For the previous three value added tax (VAT) quarters, Tardy pic has been late in submitting its VAT returns and in paying the related VAT kabilities, The company is therefore currently serving a default surcharge period, As part of your fiem's tax audit for the year ended 31 March 2023, you have ciscovered that Tardy pic has been careless in Incorrectly treating the supply of standard-rated services recewed from VAT registered businesses situated overseas, This careless incorrect treatment has resulted in an underpayment of VAT to HM Revenue and Customs of £8,200 for the year ended 31 March 2023. KAPLAN PUBLISHING 209 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 257 257 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION ({F42022) Required: (a) Advise Tardy ple of the default surcharge implications if during the current default surcharge period it is late in paying a further VAT liability, and what the company will need to do in order to revert to a clean default surcharge record, fa (3 marks) (b) Explain when and how a UK VAT registered business should account for VAT in respect of the supply of services received from overseas VAT registered businesses. (3 marks) (c) Explain why Tardy ple will be permitted to disclose the underpayment of VAT of £8,200 by entering this amount on its next VAT return, and state whether or not default interest will be due. (qd) (2 marks) Advise Tardy plc as to the maximum amount of penalty which is likely to be charged by HM Revenue and Customs in respect of the underpayment of VAT of £8,200, and by how much this penalty would be reduced as @ result of the company’s unprompted disclosure. El (2 marks) (Total: L0 marks) 315 SMART LTD @ Walk in the footsteps of a top tutor This scenario relates to four requirements. Smart Lid commenced trading on 1 September 2022. The cornpany’s soles for the first four months of trading were as follows: £ September 2022 26,000 October 2022 47,000 November 2022 134,000 December 2022 113,000 On 1 November 2022, the company signed a contract valued at £86,000 for completion during Novernber 2022 All of the above figures are stated exclusive of value added tax (VAT). Smart Ltd only supplies services and all of the company’s supplies are standard-rated. Smart Ltd allows its custerners 60 days credit when paying for services, and it is concerned that some customers will default on the payment of their debts. Ihe company pays its purchase invoices as soon as they are received. Smart Ltd does not use either the VAT cash accounting scheme or the annual accounting scheme. 210 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 258 258 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 PRACTICE VALUE ADDED TAX QUESTIONS: SECTION §& Required: (a) State, giving reasons, the date from which Smart Ltd was required to register for value added tax (VAT), and by when it was required to notify HM Revenue and Customs (HMRC) of the registration. fea {b) (3 marks} State how and when Smart Ltd will have to submit its quarterly VAT returns and pay any related VAT liability. El Note: You are not expected to cover substantial traders or the election for monthly (c} returns, (2 marks) State the circumstances when a VAT registered business like Smart Ltd, which is not using the VAT cash accounting scheme, would still have to account for output VAT at the time that payment is received from @ customer, kl {d) (2 marks) Advise Smart Utd as to why It should be beneficial for the company to use the VAT cash accounting scheme. mB (3 marks) (Total: 10 marks} 316 ZIA P Wolk in the footsteps of a top tutor This scenario relates to three requirements. Zis has been regbtered for value added tax (VAT| since 1 April 2012. The following information 1 is available for the year ended 31 March 2023: Sales invoices totalling £126,000 were issued, of which £115,200 werz in respect of standard-rated sales and £10,800 were in respect of zero-rated sales. None of Zis’s customers are VAT registered. 2 On 31 March 2023, Zia wrote off two inpairment losses which were in respect of standard-rated sales. The first impairment loss was for £780, and was in respect of 3 sules invoice which had been due for payment on 15 August 2022. The second impairment loss was for £660, and was in respect of a sales invoice which had been due for payment on 15 September 2022. 3 Purchase invoites totalling £49,200 were received, of which £43,200 were in respect of standard-rated purchases and £6,000 were in respect of zero-rated purcheses. 4 Rent of £1,200 Is paid each month, During the year ended 31 March 2023, Zia made 13 rental payments because the invoice cated 1 April 2023 was paid carly on 31 March 2025. This invoice was in respect of the rent for April 2023. 5 During the year ended 31 March 2023, Zia spent £2,600 on mobile telephone calls, of which 40% related to private calls, 6 During the year ended 31 March 2023, Zis spent £1,560 on entenaining customers, of which £240 was in respect of overseas customers. Al of the above figures are inclusive of VAT where applicable. The expenses referred to In notes 4,5 and 6 arc all stondard rated, Zia does not use either the cash accounting scheme or the flatrate scheme. He has forecast that for the year ended 31 March 2024, his total sales wéll be the same as for the year ended 31 March 2023. KAPLAN PUBLISHING 211 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 259 259 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) Required: (a) Calculate the amount of value added tax [VAT) payable by Zia for the year ended 31 March 2023. 3 You should indicate by the use of zero any items referred to In notes 1 to 6 where there is no VAT impact. (b) (6 marks) Explain why Zia will be permitted to ase the VAT flat rate scheme from 1 April 2023, and state the circumstances in which he will have to jeave the scheme. fal (2 marks} (c} Explain whether or not it would have been beneficial for Zia to have used the VAT Rat rate scheme for the year ended 31 March 2023. fel Motes: i You should assume that the relevant flat rate scheme percentage for Zia’s trade would have been 12% throughout the whole of the year ended 31 March 2023. 2 Your answer for this part of the question should be supported by appropriate calculations. (2 marks) (Total: 10 marks} 212 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 260 260 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 Section 6 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS PRACTICE SECTION A OBJECTIVE TEST QUESTIONS INCOME TAX BASICS AND EMPLOYMENT INCOME 1 Taxable £400 in shares In the company he works for ¥ £1,000 in an Individual Savings Account £800 ins NS&d investment account £500 purchasing a NS&I certificate Exempt ¥ ¥ v income generated from an Individual Savings Account and @ NSS! certificate & cxcmpt from income tan. Income generated from shares:{dividends) and from a NS&! Investment account (interest) & subject to income tax, 2 8 Personal allowance 12,570 Restriction [£111,900— £900 — £100,000} = £11,100 +2 {5,550} Restricted personal allowance KAPLAN PUBLISHING 7,020 213 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 261 261 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION 3 (FA2022) £9,420 £ 106,800 1,500 Trading income Dividend Net income 208,300 £ PA Net Income Less: Gross gift aid 108,300 {2,000} Adjusted net income Less: £ 12,570 106,300 Income limit (100,000) 6,300 4 Reduction of PA (50% * £6,300) (3,150) Adjusted PA 9,420 ¢ Non-savings income E Rental moome = net income 40,650 Less: PA (12,570) Taxable income Income tax liability: Nor-sayings Income— basic rate Less: Marriage allowance 28,080 £ 28,080 1,260 «20% * 20% 5,616. (252) Income tex lability 214 5,364 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 262 262 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE OU ESTIONS: SECTION 6 5 Deductible Not deductible A contribution intoa personal pension v scheme A charitable gift aid donation 6 ¥ A contribution Into'an emotover's occupational pension scheme y Acharitable donation made under the payroll deduction scheme 7 £4,288 Van benefx € 3,600 Fuel benefit 6&3 Total taxable benefit 4,238 Tutor's top tips Von benefits ore provided in the tox rates and allowances in the exam, so do not need to be fearet, The CO2 emissions and the propartion of privete use ore not relevant (unless the private use is insignificant, in which case there is no Senefit-at all}. 7 Qualifying interest Interest paid on a loan he incurred to Not qualifying v purchase alaptop for use in nis employment interest paid on the mortgage for his main v private residence Interest paid on an amount he Dorrowed to finance the acquisition of 2,000 shares ina quoted company v Interest paid on 2 loan he took to invest capital in a. partnership in order to become.a v partner KAPLAN PUBLISHING 215 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 263 263 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 YX-UK>: TAXATION (FA2022) ee Tutoria/ note | Relief is given for interest paid on loans tofinance expenditure for a qualifying purpose, which | Wreludes: ° The acquisition of plant and machinery by an employed person for use in his employment, ¢ * . The purchase of shares in an ernployee-controNed trading campany by a full-time | employee. The purchase of a shore ina partnership, or the contribution to a partnersh\p of capital ora loan, The borrower must be a partner in the partnership. The purchase of plant and machinery for use in the portnership, by a partner, Tutor’s top tips The number of ties needed for an individual to be UK resident depending on the number of | days spent in the UK in a porticulor tax year /s inchided in the tex rates and aliowances provided to you wn the examination. This question could have been answered quickly and easily provided that you understoad how to interpret the table! c | Examiner's report | This question examines the third automatic non-UK residency test. For an individual to meet ths test, and therefore be treated as automatically not resident in the UK for the tax year | 2022/23, they would have to work full-time overseas and spend less than 91 days in the UK. | Therefore, because Hana worked full-time in Egypt throughout 2022/23, he will be treated | as automatically not resident in the UK for the tax year as long as he spends no more than 90 | daysin the UK, | The correct answer is therefore C, however, answer option A wes mast commonly chosen. | This would be the correct answer using the sufficient ties tests. However, the sufficient ties tests are only used to determine residence status if none of the automatic non-UK residence | tests (and none of the automatic UK residence tests) is met. | This suggests that candidates mey not have been famifar enough with the residence tests _ and the procedure to determine residence. 216 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 264 264 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 10 Resident Not resident Baw “ | Minh | Y 630 Is treated as automatically non-UK resident, as he has spent less than 46 days in the UX in the tax year 2022/23 and has not been treated as UK resident in any of the three previous Tax years (having spent less than 46 days in the UK each tex year), Minh. is treated as automatically resident in the UK as, although he hes been here for less than i83 days, he works full time in the UK, il a Tutorial note The circumstances described in options A, 8 and C would eacé: lead to Harper meeting one of | the automatic UK residency tests. The circumstances described in aption O would result in Horper mecting two of the sufficient ties tests, but not an automatic UK residency test. 12 «=6£680 £ £ Child benefit received Trading Income Less: Gross gift ald (£400 = 100/80) Adjusted net income Less: Lower limit 1,134 $6,500 {500) 56,000 {50,000) 6,000 1% per £100 of £6,000= 60% Child benefit tax charge = 60% of £1,134 jrounded down if required) KAPLAN SUBLISHING 680 217 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 265 265 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) 13 «=O interest recelved 30 June 2022 (£200,000 x 1% « 6/22) interest accrued (1 July 2022-30 November 2022) (£200,005 x 1% x 5/12) 1,000 Total interest income 1,833 833 rr % Tutoria) note | Gilt mterest is assessed like other interest income on the receipts basis. However, under the | accrued income scheme when gits ore sold interest ts effectively allocated to the vendor and | purchaser on the oceruals basis up to the date of sale. | Menon did not recelve any interest on 31 December 2022 but will be toxed on £833 | Fopresenting the interest eccruing in the interest period for which he awnod the girs, 14 True Eric & automaticady not resident in the UK Fabe “ Fran is eutomatically not resident in the UK a Tutorial note | Erie = Jess than 46 days and not previously resident. | Fran—vresidert during the previous three yeors, so to be automatically not resident she must | be inthe UK far less than 16 days, 15 A Interest received 30 Seatember 2022 (£10,000 x 2% « 6/12) Less: Interest accrued prior to purchase (4 April 2022 —33 May 2022) (£20,000 « 2% = 2/22) [33] Interest accrued (2 October 2022 — 28 February 2023) 218 (£10,000 x 2% = 5/12) 8&3 Total interest income 150 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 266 266 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 ig Tutorial note Gilts ore subject to the aceryed income scheme, On a dispaso! interest Js effectively, allocated between the vendor ond purchaser on the -occrvals basis in reletion to their period af ownership. 16 Taxable N5&l investment account interest | Gilt edges senurity interest NS&I savings cervficate imerest 17 Exempt v x v A £ Property income interest from UK Governmunt securities (Gilts) Dividends Net income 21,150 2,400 1,250 24,800 Less: Personal allowance Taxable incorne (12,570) £2,230 Analysis of income: Norrsavings income = £8,590 (£23,150 — £12,570}, savings income = £2,400, dividend income = £1,250. € $,580 1,000 x 20% (Nan-savings income) « 0% (SNR3} 3,400 * 20% (Savings income} 1,250 « 0% (DNAS) 2.716 0 280 0 12,230 income tax liability KAPLAN PUBLISHING 1,596 219 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 267 267 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (3 Tutorial note | Basic rote toxpayers are entitled to a £1,000 savings n¥ rote band (SNRB}, whereas higher | cate toxpayers ore only entitled to o £500 SNRB, and additional rate taxpayers do not receive a SNRB ot all, A dividend nil rate band of £2,000 is evailable to sil texeayers regardless of the emaunt of their taxable income, 18 £4,849 £ Dividends 56,950 Less: PA (32,570) Taxable income 44,380 £ Income tapi lability: Bwidend income ~ nil rate band {£2,000 x 0%) d Dividend income — basic rate (£35,700 x 8.75%) 3,124 Dividend income ~ higher rate (£6,680 x 33.75%) 2.255 Income tax liability 5.375 id Tutorial note The dividend nil rate Band /s £2,000, This uses the basic ond higher rote bonds, 19 A £ Premium Less: £82,000 x.2% * (15 — 1} Property income $2,090 (22,960) 59,040 Alternative caiculation = £82,000 x (51 — 2S)/50= £59,040 220 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 268 268 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL 20 INSURANCE QUESTIONS: SECTION 6 A £ Child Genefit received Employment income Bank interest Adpusted net incorne Less: Lower linit £ TS8s. $5,000 3,000 $8,000 (S0,000) $,000 1% per £100 of £8,000= 80% Child benefit tax charge » 80% of £1,885 [rounded dawn if necessary} 2i 1503 A Normal assessment: Rental income {£750 x 12) Expenses (E475 % 12) Property income Atemative: Rental income Rent-t-room relief E 9,000 {5,700} 3,300 3,606 (7,500) 1,500 SA Tutorial note Rent-z-room relief of £7,500 should be deducted instead of the actual expenses incurred as this produces a lower toxoble amount then the naymol property income cakculation. A Premium £ 20,000 Less: £20,000 x 2% « (25 - 2) {9,600} Property income 10,400 Atternatlve calculation = £20,000 = (51 — 25)/S0 = €10,400. KAPLAN BUSLISHING 221 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 269 269 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) | Examiner's report The premium received is ona short lease therefore a proportion of it is treated as income. | £10,400 being the correct income portion of the premium, | (8) Calculates the capital portion of the sremiuen 2%{{25—1) « 20,000} = 9,600 | (CQ Calculates the correct part of the premium but it is unnecessarily time apportioned {since | Sou & the lessor and is taxed to incame-on receipt of the premium) 10,400 « 6/12 = 5,200 | (D) 20,006 less {254{(25} « 20,000}) = 10,000 This does not deduct one year from 'n', the | number of years on the lease 23 «2B Rent received Less: Expenses paid 9,600 Counc tax insurance S00 S40 Refrigerator 870 ——s (2,310) Property income 7,290 Ea Tutorial note | Property income should be calculated an the cash basis in the examination unless you are toid | othenwite: The deduction far insurance is calculoted by reference to the dote paid, the period | cavered is irrelevant under the cash basis: A deduction can be taken for the cost af repiacing | furniture. furnishings, appliances (including white goods) and kitchenware provided for sein @ dwelling. 24 £24,500 £ £ 25,000 Net property income before adjustments Less; Expenses Replacement kitchen unit (recair to fitted kitchen} interest payable 500 o — (500) Property income 222 24,500 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 270 270 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS a TO PRACTICE INCOME TAX AND HATIGNAL INSURANCE QUESTIONS: SECTION 6 Tutorial note Tox relief for interest paid ona loon to acquire a residential property thot is let aut, is restricted os foliows: i None of the finance costs are an allowable deduction from property income 2 ~~ Tax relief is given an the finance casts at the basic rate (20%) by deduction fram the taxpayer's final income tax Nobility. Note that details of the basic rate restriction (hat applies to the finance costs is given in the Tax Rotes and Allowances provided in the examination, 25 A Satary 55,009 Mileage allowance: Amount received (14,500 = 43p] AMAP rates; 10,000» 45p 4,500 « 250 Excess mileage allowance ‘Emplopment income” 6,235 {4,500} (2,125) 610 55,520 The assessable benefitis the cast of the medical insurance to Christas’ employer. The other benefits are both exempt. 27 A The original cost dic not exceed £75,000, therefore it & not considered to be an ‘expensive’ accommodation, The only benefit is the basic charge based on the annual value of £2,600, Elin contriputes more than the annual value {E280.* 12 = £3,000] and therefore the assessable benefit is £0. KAPLAN SUSLISHING 223 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 271 271 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK: TAXATION 28 (F42022) £9,240 CO, emesions = 157 grams per kilometre (rounded down to 155), available for 11 months. % Diesel (meets RDEZ standard so no additional 4%] 16 Pus: (155 - 55} x */s a0 Appropriate percentage 36 £ Car benefit (£28,000 » 36% * 11/12) 9,240 29 #26 Average method Losn at start of tax year £ 200,000 Loan atend of tax year 60,000 E 166,000 Average loan |£160,000+ 2) 80,000 Assessante benefit {£80,000 x 2%) 1,600 Less Interest paid (£200,000 « 2% * 4/22) (£50,000 « 15% » 8/12) 333 400 — 1733) 8b? 30 | Taxable intaxyear | Not taxable In tax 2022/23 Bonus of £2,800 received.on § April 2022 in respect of the year to 31 Deosrnber 2021 7 Bonus of £3,300 received on 3 Apel 2023 im respect of the year te 31 Decomber 2022 y year 2022/23 ie Tutorial note Employment income is assessed on the receipts basis Le, income received in the tax year). 224 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 272 272 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL 321 INSURANCE QUESTIONS: SECTION 6 OD E f Higher of: fi) MV at date of transfer 1,409 {i} MV when made avatlable for private use Less; Annual value for 2021/22 for use of asset 2,009 (E2,000 = 2035) (400) 1,600 Taxable benefit 1600 ia Tutorial ‘mote The benefit on 6 April 2022 when Mox was given the camera is the higher of the morket valve ot the time of gift and the market volue when it wos first made available to Max less amounts previously taxed. 32. «-¢,0 ig Tutarial note Where an employee is reimbursed expenses by the employer, the ammount received is taxable Income. Hovrever, an exemption apoiies where the employee woud te able zo claim a tax deduction for the business related expenses. The reimbursement of Albert's professional subscription fees and troin fares are therefore exempt income. KAPLAN PUBLISHING 225 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 273 273 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) INCOME TAX BASICS AND INCOME FROM SELF-EMPLOYMENT 33 £600 The £450 spent on food hampers needs to be added back as gifts of food are disallowabie, Costs relating to the acquisition of a short lease are disalloweble so £150 must be added back. The costs of renewing a short lease would be allowable. Employee parking fines incurred on business and amounts spent cn stalf entertaining (regardless of the emount} are allowable deductions from trading profits. Se Tutoria! note Annual events which cost the employer more than £150 per head ove u taxable benefit for the _ employee, but the costis still deductible for the employer. Hanifulls treated as making 3 sale to himself at selting price. As no adjustment has been made in the accounts to reflect the goods taken for personal use the full selling orice must be added to the trading profits. keg Tutorial note if Haniful hod atready made an adjustment in the accounts to remove the cost of the goods | token our of the business (by adding back the cost ef £850) then only the profit element of £250 would need ta be added to the trading profits for tax purposes. £775 Firstly the amount taxable an the landlord as property income must be calculated: £ 25,000 Premium Less: £25,000 x 2% x (20 = 1} (9,500) Property incame 15,500 Alternative calculation = £25,000 = (Si — 20)/50 = £15,500 Fleur can tske an annual deduction for the property income element, scread evenly over the period of the lease: {£15,500 + 20} = £775. As Fleur acquired the lease on 1 January 2022 the full annual amount of £775 is deductible when calculating the tax adjusted treding profits for the year ended 31 December 2022. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 274 274 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL 36 INSURANCE QUESTIONS: SECTION 6 c Mainpool Allowances £ £ TWDV b/F 6,200 Adgdition: Computer 1,09 7 OO Disposal (3,800) (2,000) Balancing charge 2,000 (2,000) a (2,000) Tata! allowances et Tutorial note in the peclod of account in which the business permanently ceases, the AIA, WDA and FYASs are not available. Additions and disposals ore added to/deducted from the relevant pool and @ bolancing charge. or allowance is calculated 37 A Private use Allowances car é £ TWOY b/F Disposal 12,000 (6,000) 6,000 Batsncing allowance TWD c/f Total abowances (6,000) x 60% 3,600 0 3,600 Examiner’s report This question required students to demonstrate their knowledge af capital allowances on cars, where there was 3 disposal of 3 car during the year which was also used for private use by Olive. As the car was disposed of during the year, candidates need to recognise that a balancing allowance arese on its disposal, and that the amount of capital allowance Olive could clawn was restricted to the business use element {i.e. 60%). The correct answer was therefore A Many cancidates instead chose D. continuing to write down the cast of the car, rather: than calculating a balancing allowance. Candidates are reminded thet cars which are used partly for private use by 4 sole trader are put inta their own pool and an disposal a balancing charge or allowance may arise. KAPLAN PUBLISHING 227 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 275 275 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> 38 TAXATION (FA2022) CandF Any asset with private use by the owner of the business is allocated to a private use asset column rather than the mein pool. Cars with CO, emissions in excess of 50 grams per kilometre are allocated to the special rate pool rather than the main pcol, Long life assets [those with an expected life of 25 years or more, with a total cost of £100,000 im a twelve month period) are added to the special rate pool, Assets with an expected working life of less than 25 years are not treated as jong Ofe assets and are edded to the main pool, 39 «£14,420 A new car with zero CO: emissions qualifies for a first year allowance of 100%, The FYA is nevor time apportioned irrespective of the length of the period of account, The tax written Gown value brought forward in the main pool is entitled to WDA at 18% time apportioned for 8 months therefore: £ TWODV b/f WDA (13% « 8/12) PAain pool £ 18,000 (2,160) Allowances £ 2,160 Addition (with FYA) Car FYA (200%) 12,260 (12,260) 12,260 0 TWDV c/f 15,840 Total sllowances 24,420 i Tutorial note In Section A, marks are not available for your workings. If you are confident with capital | allowances you may find it quicker far straightforward questions such os this to calculate the | a@lewonces available for each pool without using the pro forma: (£12,260 x 100%} = £12,260 | (£18,000 « 18%) = £3,240 x 8/12 = £2,160 | Tota! = (£12,260 + £2,160) = £14,420 228 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 276 276 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 40 TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 OD In the final period of account, no ALA, WDA of FYA is available; only balancing adjustments arise. TWOV b/F Additions Disposals Disposals —pool items — laptop retained personally Mainpool £ 15,600 4,300 (14,550) Allowances £ (4.150) Balancing allowance 300 {300} 200 The laptop is treated as having been disposed of at market value. 41 £7,250 Structures and buildings allowances (SBA) can be claimed on qualifying expenditure which includes the cost of the building and structure as well as the renovation cost, but not the cost of land, S8A¢s can only be claimed from the date the building is brought into use. {£550,000 + £30,000) x 3% « 5/12 = £7,250 42 DandF Only new cars with zero CO; emissions qualify for FYAS in the TX syilabus. Expenditure on a building qualifies for @ 3% SBA fromm the date it is bought into use. The small pool WOA of £1,000 is time apportioned if the accounting period is not twelve months long. There is no balancing adjustenent on disposal of 4 building an which SBAS have been claimed, Instead, the buyer takes over the remaining SBAs based on the original cost of the building. 43 £16,500 Fo Tutorial note Jocinta started trading on 1 August 2022 and so the tax yeor 2022/23 is the first tax year of her trade. int the first tax year, the profits toxed ere the octual profits orisina from the first day of rode up to the fofiowlag 5 April This is an eight month period ond will include olf the profits for the five months to 31 December 2022 and three months (1 January to S Apri) 2023) from the next set of occounts, £10,500 + (2/12 x £24,000} = £16,500. KAPLAN SUBLISHING 229 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 277 277 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) 44 C Marek ceased to trade on 31 January 2023, which falls into the tax year 2022/23 Up to that tex year Marek has been taxed on the current year basis therefore in 2021/22, Marek was taxed on the profits of the accounting period ending In that year Ie. y/e 30 April 2021, in the tax year in which he ceases to trade he is taxed on any trading profits not taxed in previous years less his overtap profits that arose when he started his business, i.¢.: £ ¥/e 30 April 2022 10,000 pe 51 January 2023 14,000 Less: Overtap profits (3,000} Trading income assessment ~ 2022/23 21,000 PARTNERSHIPS 45 D Total y/e 31 December 2022 p/e 31 July 2022 (£120,000 x 7/12) = £70,000 PSR (70:30) 70,000 21,000 10,000 40,000 10,000 8,000 120,000 39,000 p/e 31 December 2022 (£120,000 « 5/12) = £50,000 Salary (£24,000 x 5/12) PSR (80:20) Allocation of profit 46 £39,850 2022/23 —y/e 30 September 2022 Total Salary 25,000 25,000 Interest on capital (43% x £50,000/£40,000) Balance (1:3) 51,400 12,850 38550 Allocation of profit 80,000 39,850 40,150 3,600 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 278 278 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 47: TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 —6<=8B y/e 31 December 2022 Total Tim £ £ 1.1.22 = 31,5.22 (£360,000 x 5/12) = £250,000 Allocation of orofit 6,259 6,250 143,750 23,958 150,000 § Satary (£45,000 = 5/12) PSR {1/6} isne Tutarjal note You could hove calculoted the profit afiocoted to each of the three partners Jor the whole yeor ended 32 December 2622. However, only the profit ofoceted to Tim for the 5 months that he was 9 portver wos required, it wos not necessary to colculate how the remaining profit wes allocoted to the other two partners and would have wasted veluehls time in the examination. 48 8,DE y/e 31 October 2022 Total Fabiola E £ 16.22 — 31.10.22 (£240,009 x 5/12} PSR (1:5) 109,900 20,000 y/e 31 October 2023 PSR (1:5) 300,000 60,005 2022/23 — First tax year Actual basis 1.6.22-5.4.23 1.6.22 ~ 31.10.22 20,009 1,43.22-—5,4.23 (£60,000x 5/12) 25,009 Trading income assessment 45,909 2023/24 — Second tax year Current year basis y/a 32 October 2023 Trading income assessment 60,000 Overlap 1,13.22-—5,4,23 (£60,600 « 5/12) KAPLAN SUBLISHING 25,000 231 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 279 279 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION TRADING 49 {FA2022) LOSSES A Prior year loss relief claim t Set against trading protits {unrestricted} 24,000 Set against non-trading profits (restricted to maximum)(note} 50,000 Maximum loss relief.clzirn 74,00 re Tutorial note Only losses set against nen-treding income of eovlier years are restricted to the maximum | amount; fosses set against poor yeor trading profits are not restricted. The cop on income tox | retiess ts Inchuded in the tax rotes ond allowances prowded {0 you In the exomination, 50 £13,000 Trading income 2022/23 £ 12,000 Less: Losses b/f (12,000} Olvidends 9,000 Furnished holiday accommocation NS2/ certificate interest. 4,000 exempt Net income 13,000 fe Tutorial note The trading loss is corried forward to the next tox year and offset against the first avaitabie | trading profits from the same trade. Profits fram qualifying furnished holiday accammodation | are ret treated os trading income for the purposes of offsetting troding lasses. 232 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 280 280 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 5i OD Trading income £ 55,000 Bank interest 16,000 2022/23 £ Q 14,000 Total intome 69,000 (69,000) 14,000 (14,000) 2021/22 Less: Loss relief 0 Net income Loss memorandum: 90,000 (69,000) Loss arking in 2022/23 Used in 2021/22 — Prior year Used in 2022/23 - Current year {14,000} 7,000 Loss carried forward te 2023/24 ee Tutorial note A current and orier year loss relief claim is against total incame in the tox yeors 2022/23 undsor 2021/22. tt cannot be restricted to prevent the less af the persona! alfowence. The loss offset in the tax year 2021/22 |s not restricted to £50,000 as the restriction only applies to losses offset against other income, not income fram the same trade. 52 £10,417 Tax year Basis period Avallabie loss 2020/21 2.11.20 ~ 5.4.21 {S/12 * £25,000} 10,447 yin 311021 25,000 3021/2? Less; Used in 2020/24 (10,417) 14,583 KAPLAN BUSLISHING 233 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 281 281 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) id Tutoria! note The floss of £10,417 is a loss in the first four tax years af trading ond can be offset against total _ income in tire tox years 2017/18, 2018/19 and 2019/20 in thatorder, 53 OD £ Available lass is tower of: ()) Remaining trading loss following current year claim against total incame {£45,000 - £8,000} 37,000 (i) 32,000 C¥ chargeable gains Less: CY capital losses (4,090) Less; Capital losses b/f (18,000) 20,000 Available loss 10,000 Ed Tutorial note The maximum amount of trading lass that con be offset ogoinst chargeable gains is the lower | of: (i) (i) = the remaining loss, or chargeable goins in the year after the deduction of current year capital losses and breught forward copital lasses. Brought forward capitol losses are not restricted ta preserve the annual exempt amount in this cofculation. The maximurn trading joss is then offset against current yeor chargeable gotns, offer current yeor capital losses but before. brought forword capital losses. The offset of brought forword | capita! tosses is restricted to preserve the annual exempt amount. 234 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 282 282 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 54 TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 £30,000 Terminal loss € £ 6 April before cessation to date of cessation 6.4.22 — 30,9.22 1£24,000 x 6/8) 18,000 12 months beforn cessation to $ April betore cessation 1:2.22 « 5.4.22 {£24,000 = 2/8) 6,000 1,206.23 — 31,122 (£39,000 x 4/12) (13,000) Profit —ignore Plus: Overlap profits (7,009) 0 12,000 ig Terminal kiss 30,000 ‘aote A terminal lass is the lass of the last 12 months of trading. The result arising in the period from the 12 months before the dole of cessation to S April-2022 is o profit, It is therefore ignored in the terminol loss colcuietion. PENSIONS AND NIC 55 c¢c Ed Tutorial note Gass 2 and class4 national insurance contributions are paid by selPermployed individuals in respect of troding profits, Paid by Hamid to HMRC | Class 14 Class 2 chase4 KAPLAN SUSLISHING o | | S| [8]4) “Employer's dass isecondary i iA) SIA] ALS “Employee class primary Suffered by Hamid 235 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 283 283 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) id Tutoria! note | Hamid must pay class 2 and class 4 NICs in respect af his sote trader profits, employer's class 1 | secondary NICs in respect of his employee's salary ond class LA NICs in respect of the comoany | car benefit for the employee. Although Hamid is required to. puy over the employee. class 2 primary NIC to HMRC, he vill | deduct this from the salary pod to Ais employes so it is nat @ cost thot is suffered by hin. 5? | Cc E 3,104 (2,402) {164) Employed ~ Class 2 (£36,000 -£22,570)* 13.25% Self-employed — Class 4 (£36,000 — £12,570) * 10,25% ~ Class 2 {£3.15 x 52} 538 53 £5,311 E 4,995 346 (£50,270 — £42,570) x 13.25% (£60,000 - £50,270) x 3.25% §,321 Ea Tutorial note _ Employment benefits are subject te class 1A NIC, not closs I NIC Cipss I NIC are based-an | cash earnings, the pension contributions are not an alowole deaucton, 59 =A £ 236 (£50,270 — £42,570} * 13.25% (£63,000 — £50,270)» 3.25% 4,395 454 Class 1 employee NICs 5,409 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 284 284 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL a INSURANCE QUESTIONS: SECTION 6 Tutorial mote Subsidised onsite canteen facilities ore an exempt benefit, provided they are available for alt employees. 60 £6,246 Class 1 employer's NICs £ {£50,600— £9,100) x 15.05% 6,246 Working: Earnings Hable to class 1 NIC £ Salary Excess mileage allowance {12,000 » (S0p — 45p}) 50,000 600 50,600 i Tutorial note Occupational pension scheme contributions ore not deductible from earnings for NIC Purposes. The excess miieage allowance above the AMAP of 450 per mile (regordiess of the nurnber of business tmles} is subject ta class 1 NICS. 61 OD = {£50,270 — £12,570) x 10.25% {£58,000 - £50,270) x 3.25% 3,364 251 4115 a Tutorial note Paloma is assessed on the ‘current year basis’ os she has been trading for a number of years, | KAPLAN PUBLISHING 237 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 285 285 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 62 =A Class JA NIC E £900 * 15.05% 135 | Examiner's report | The <orrect answer was A because class 1A NIC is only charged on the gym membership and | tis calculated based on the cost to the employer (hot what the employee would have paid). 4A number of candidates. selected C £466 as the correct answer, This was calculated by including the employer contributions into Esa’s private pension in the calculation {i.¢. (900 + 1,800) » 15.05%), which is incorrect as these contributions are exempt from class 1A NIC. 63 A Gass 14 NIC £3,450 % 15.05% £ $19 Working: Car benefit CO emissions = 94 grams per kilometre (rounded down to 90) % Petrol Phas: [90 — $5) = */5 16 ? 23 £ 3,450 Car benefit {£15,000 x 23%) 64 ¢€ £ Trading profits 70,000 Less: Trading loss b/f (20,000) Acsescanle profits for class 4 NICS 50,000 Ed Tutorial note | if trading tosses ore carried forward they are offset against the first avollable trading profits arising from the same trode. _ Assoie trader pays class 4 NIC an traving profits only, nat on any other income. 238 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 286 286 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND HATIGNAL INSURANCE QUESTIONS: SECTION 6 65 Class 2 NICs payable Mohenened Class 2 NiCs not payable “ Nicole ae Tutorial note Mohammed will pay class 2 NiCs for the tax year as his tox adjusted trading profit for the tax years more. than the lower profits limit. Nicole does not pay class 2 NICS for the tax yeor a3 she is abave the state pension aae. 66 £864 1.1.22 = 31.12.22 £ & months ended 30 June 2022 6 manths to 31 December 2022 (6/12 8,300 £24,400) Assessable profits 12,200 21,000 ‘Class 6 NICs {£21,000 — £12,570) « 10.25% 264 ia Tutorial mote 2022/23 is the second tax pear of trading and Sanjay’s period of account ending in that tax year is < 12 months !ong. Therefore the assessment Is bated on the first 12 months af trading ie. the 12. months ended 32 December 2022. 67 CandE— The annual summer event is a taxable benefit as the cost exceeds £150 per head, and the sports dub membership fee & also a taxable benefit.As non-cash benefits they are subject to class LA NIC, Occupational pension scheme contributions pond by the employer, car parking spaces at or near the workplece and the provision of one mobile phone are all exempt benefits for NIC purposes. The mileage allowance paid for sormel commuting isa taxable cash benefit, which Is subject to class. 1 NICs, not class 14 NICs. KAPLAN SUSLISHING 239 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 287 287 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION 63 {FA2022) £12,540 aac’s incorne tax basic rate band is extended by the grossed up contribution as follows: £37,700 + {£20,000 « 200/80} ~ £62,700 Income tax of £12,590 [£62,706 « 20%) is payable st the basic rate. The conte bution is lower than Isaac's relevant earnings for the year {£710,000} and therefore tax relief is available on the full amount. 69 C Annual allowance £ 40,005 Add: brought forward allowances {w) 15,000 Maxtnum contributions 58,000 Working; Unused AA B/f £ 2019/20 = (Exceeds £40,000) 2020/21 2021/22 o (£49,000 — £37,000) (£40,000 = 28,000) 3,009 12,000 AA b/f from earlier pears 15,000 Ed Tutorial note Unused ennuel allowances can be brought forward from the previous three tax years. There is no unused AA for 2039/20 as the gross contributions in thot yeor exceeded the AA of £40,000. The excess would have been charged in 2039/20 or covered by unused aliowonces from earlier | years ond would not reduce the later AA avevable: Therefore this year has no impact on the _ answer Co this question. 70 Fully taxrefievable pension contributions Austn Petra | —_—Nott fully tax retievable pension contributions v ¥ Austin’s total gross pension contributions are £28,000 (£22,400 « 100/80). They are Jess than his relevant earnings of £51,200 and less than the annusl allowance. His contributions are fully tax relievahle. 240 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 288 288 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATICNAL INSURANCE QUESTIONS: SECTION 6 Petra’s gross contributions of £62,500 (£50,000 « 100/80) exceed the annul allowance of £40,090 for the tax year 2022/23. She has no unused annual allowances brought fonward as she was not a member of a pension scheme in previous years. She wil obtain tax relict at source on the contributions, as they are less than her relevant earnings. However, part of the tex relief will be clawed back through an annual allowance charge. a Tutorial note An employed indvicval can make pension contributions into either an accupotiona! pension scheme of @ personal pension scheme or buth. Contributions are fully tax refevable provided total gross contributions do not exceed thelr total relevant earnings and the annual allowance, 71 OA £ Adjusted income Annual allowance — 2022/23 Less: 50% » (€270,000 — £240,000) £ 270,000 40,000 (15,000) Available annual allowance 25.000 Gross personal pension contributions 100,009 Less; (25,000) Available annual allowance Annual allowance charge 75,900 Examiner's report This ts. 2 fairly challenging question involving a number of rules and computational steps. Candidates should first calculate the annual allowance, followed by tha annual allowance charge. The correct answer is A because, the annual afowance of £40,000 is reduced by £1 for every £2 by which the individual's adjusted income exceeds the threshold of £240,000, subject to 4 minimum aonual allowance of £4,000. Sa. Niemhe's annual allowance foe the tax year 2022/23 £25,000. The annual allowance charge fs the amount by which Niamhe's gross persona! pension scheme contributions exceed her annual allowance, A number of candidates selected D £25,000, which is the annual allowance, rather than the antual allowance charge. (The above report has been edited to update the figures to FA22 and to remove the calculations which are shown in the working above] KAPLAN PUBLISHING 241 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 289 289 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION 72 {FA2022) =#O Salary Furnished holiday accommodation income £ 50,000 5,000 Relevant oarnings 55,000 Se Tutorial note Tax relief for both personaf persian cantributions and gift aid donctions is made by extending | the basi¢ and higher rate bands dy the gross contributian/donation. There is no reed to odjust relevant earnings for gift aid conations — this was inciuged ta | mislead you! 73°» £142,100 & Salary Less: Occupationa! pension conteibutions (2% x £145,000} 145,000 {2,900} Net Income 142,100 bd Tutorial note | Employer pension contnibutions are an exempt benefit. | Tox relief for occupational pension scheme contributions is given ot the emplayee’s marginal | fate of tax by deducting them from employment income, | Bosic rate tax relief for personal persion scheme contributions is given at source, Tax reliefar higher rates is given by extending the basic rote and higher rote tox bands. 242 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 290 290 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 74: =#«228B £ Trading income 106,600 Less: PA (12,570) Taxable income $7,430 Income tax liability Annual allowance charge E87,430 x 20% € 19,486 £270 x 20% 54 £87,700 £9,730 x 40% 3,892 21,432 Working: Extended basic rate band £ Basie rate band 37,700 Grass personal pension contributians 50,000 87,700 Se Tutoriat note The onnva! alowonce charge is toxed at the taxpayer's highest marginal rote, In this case there is@ small amount of remaining bosic rate band, so £270 of the cnnwal allowance charge Js taxed at 20% and the remainderis toxed at 40%. ADMINISTRATION AND ETHICS 75 Capitaltax Revenvetax | Nelther type Voluc added tax inheritance tax v v Nationa! insurance contributions Capita! gains tax KAPLAN SUBLISHING ~ v 243 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 291 291 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) a | Tutorial note VAT és neither a capitol ner a revenue tex, VAT is an example of a ‘soles tax’ suffered by | consumers. 760«=C«*#B is Tutorial note The term tax evasion swmmorises ony action tokes to avoid or reduce tax by illegal means, _ for example providing HM Revenue and Customs with deliberately false information. | 77 True Corporation tax is a direct tax on the turnover of companies Nationa insurance is a direct tax suffered by employees. employers and the setf-employed on earnings ssa ¥ v Inheritance tax is a direct tex on transfers of income by ¥ individuals Value added tax is a direct tax on the supply of goods and v services by businesses ia Tutorfal note | Corporation tax is @ tox on the profits of companies, not the turnover. Inheritance tax is a tax _ on the transfer of assets nor income. VAT Is an indirect tax not o direct tax. 78 Bande The other options refer to tex avoldance. 244 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 292 292 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL 79 INSURANCE OU ESTIONS: SECTION 6 +B A tar adviser must not-assist a client to planor commit any offence, Ea Tutorial note A tax adviser moy beve a fegal or professional right or duty to disclase informotian about a chent without their authority (e.g. in the cose of money foundering}. if the adviser becomes owore that o client has committed an offence they must discuss the irrequiarity with the client and ensure proper disclosure is made to HMRC. Aton adviser has duties. and responsibilities towards both his client and HMRC fey. they must ensure thot all information promded to HMRC is accurate and complete). Couldbe Unacceptadle expectad Reporting uncer the money taundertng regulations ng Advising the client to make disclosure v Ceasing to act for the client us Informing HMRC of the non-disclosure “ Warning the client that your firm will be reporting the non-disclosure. vz Notifying HMRC that your firms has ceased to act for the client r Se Tutorial note Members should net disclose informetion about the client to third parties (including HMAC) unless they have authorisation from the clert or there is a legal or professional nght ar duty to disclose (e.g. money taundering}. Where @ money laundering report is mode the cient should not be informed as this moy amount to tipping off, which js on offence. KAPLAN PUBLISHING 245 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 293 293 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION 81 {FA2022) A isd Tutorial note The legality of extra-statutory concessions wos successfully challenged in 2005, so they are | gradually being withdrawn or mode law. HM Revenue ond Customs [HMRC) issue Notices ond | Guidonee Notes, aimed at tox agents ond advisers, to provide additionol detail in relation to the general principles set out In legislation. HMRC's interpretation of tax legislation and | clarification or detail of how it should be applied is given in statements of practice. Guidance | provided fo HMAC staff in interpreting and applying tox legislation is gise avoiigbie to the | Puatic. 82 | A Bs 6C r 3 | Tutorial note | Ifa taxpayer submits a paper return on time, they can ask HMRC fo colculate the tax due. Tox | retums submitted electronically automatically calculote the tox due. 84 Phillip Harnet mv v 31 January 2025 31 January 2028 31 January 2029 a Tutorial note Taxpayers who ore in business, which for this ourcose inciudes the letting of a property, must | keep their records until five years after the 31 January filing date die. 31 January 2025 for a , 2022/23 return). 246 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 294 294 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO 35 PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 6D Ed Tutarial note Taxpayers with o Business must keep their records unt! 5 years ofter the 32 January filing dote. A business for these purposes includes property income. Other taxpayers ore generally required to keep their records for 12 months from the | 31 Jonuary filing deadline. isd Tutarjof mote The fexpayer con umend the return within 12 months of the 31 january filing date. For the tax yeor 2021/22, amendments must therefore be made by 32 January 2024. HMAC must give written notice before commencing a compliance check, The written notice must be issued within 12 months of the actual date the return js filed with HMRC, a7 Oo Payments on account {PDAs} for the tax vear 2022/23 are based on the relevant emount for the tax year 2021/22 =(£300 +. £320} = £620, As thit Goes not exceed £1,000, POAs are not required in the tax year 2022/23, 88 6B 2022/23 income ta liability Less: PAYE income tax payable (reevant amount} Payments an account (POA) £ 25,000 15,400) 19,600 (28,000) CGT liability 5,000 Balancing payment due 31 January 2024 6,600 KAPLAN FUBLISHING 247 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 295 295 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Se Tutoria! note | CGT is payable in full. on 31 Jenuary folowing the tox year ond must therefore be included in | the bafancing payment. The first payment on account for the tax year 2023/24 is alsa dure an | 31 Jenuary 2024, making the total payable £16,409. a Tutorial note The balancing payment is due on 31 Januory following the end af the tax year. | For the tax year 2022/23 this is 31 Jonuary 2024. . Where the balancing payment ts mode: « more than ane morith jate, penalty = 5% . more than six months late = an additional 5% is charged (total af 10%) . moré than 12 months late = a further 5% i+ charged {total of 1595). True False Belinda will have to pay Interest on late paid tax from WM Sanuary 2023 to 10 March 2023 Belinda will have to pay a £100 fixed penalty because the payment is late Belinda will have to pay-a 5% penahy because the payment is more than 30 days late Vv id Tutorial note The tax wos duc on 3] Janvary 2023 and not actually paid until 10 March 2023, Interest on | lote paid tex runs from the due date until thy date of payment, therefore the first statement | is true. A 5% penalty is charged if the tox is paid more than 30 deys late, therefore the third | statementls true, Fixed penoitles are eniy charged on the Iote submission of returns, not the | tate payment af tax 248 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 296 296 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND HATIONAL INSURANCE QUESTIONS: SECTION f 91 <>] Tutorial mote A toxpoyer can moke a clon to reduce their payments on account if they expect their octual income tox and dass 4 Vobility for the tax year to be hower thar the prewous tox year. The payments on account will each be 50% of the expected Nobility for the tax year 2022/23 i.e. £4,849/2 = £2,420. 92 £1,225 Daily penatties as 3 months late for max. 90 days (£10 x 90) 900 months fate (£6,500 x 5%) 325 Maxiruum penalty 1,225 Ea Tutorial mote The return was filed more than 6 months but less than 12 months late: 93 Tutorial note Interest will be chorged from 2 February 2024 to 30 June 2024; £1,200 © 3.25% * 5/12 = £16 A penaity will be imposed since the paymentis more than 30 days late: 1,200 x S%= FEO KAPLAN PUBLISHING 248 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 297 297 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK> TAXATION (FA2022) 94 True False Under the Real Time Information PAYE system, Welan Ltd must submit income tax and NIC information in respect of the monthly salary psyments to HM Revenue & Customs iectronically by the L5th day of each menth if Wetan Ltd pays the income tax and NIC due on the monthly salary payments to HM Revenue & Custorns siectronically it must make the payment by the 22nd of the month following the month the sataries are paid Welan Ltd must provide each employee with a year-end summary form {P60) for the tax year 2022/23 by 6 July 2023 isa Tutorial note Under the ATT PAYE stem information must be submitted electronically to NHMRC on or | before the date of payment. The due date for electronic payments is 17 days ofter the end of the tax month {i.c. by the | 22nd of the month follawing the month of payment) Employers with more than 250 | employees must pay their PAYE payments electronically. Smaller empleyers have the choice | to pay electranically. | An employer must prowae an employee with o P60 by 31 May folfowing the tax year. 9 8B | Examiner's report | _ _ | This question examines knowledge of the deadline for an individual taxpayer to claim relief for a trading loss which they wish to offset in the tax year prior to the tax year in which the | boss arose. The correct answer is option B (31 January 2025), a5 a claim must be made within one year of 31 Jenuary foBowing the end of the tax year in which the boss arose. Therefore, as the loss arose in the tax year 2022/23, 2 claim for relief must be made by 34 January 2025. _ Option B was the most common answer selected buta significant number of candidates also | | chose each of the other answer options, suggesting that many candidates were not well _ prepared for a question on this topic, The second most common answer was option A | (32 January 2024) which is the deadline for submitting a personal tax return online for the | tax year 2022/23. Candidates may have selected this date as they are familiar with this | deadline in retation to the tax year 2022/23 and assumed the deadline for claiming the loss | woukd be the same, | Administration deadiines, both for individuels and companies, are an important part of the syilabus and future candidates are reminded of the importance of learning, and being able to distinguish between, the different deadlines as part of their studies, KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 298 298 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 PRACTICE SECTION B OBJECTIVE TEST CASES INCOME TAX BASICS AND EMPLOYMENT INCOME 96 PHILIP & CHARLES (ADAPTED) we Walk in the footsteps ofa top tutor Key answer tips This case OT mvolves the income tax postion for two indwiduals with cifferent circumstances, It tests Incorne tex, knowledge of NIC and pension contributions. All the topics are covered at 2 basic level and should therefore have been mensgeable. 2 A Pension income Building society interest Total income, Net income Less: PA Taxable income income tax £ 2,430 * 20% Non-savings 2570 > O% Savings 5,000 1,000 x 0% Savings 11,030 % 2056 Savings Non-savings income £ 15,000 Savings income £ 14,600 Total income £ 15,000 14,690 15,000 (12,570) 14,600 23,600 (12,570} 2.430 14,600 17.030 é 486 0 0 2,206 17.030 income tax liability KAPLAN PUBLISHING 2,492 251 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 299 299 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {FA2022) isd Tutorial note Sovings income foiling in the first £5,000 of taxable income is taxed ot the starting rate of 0%. Jn aodition, basic rate texpayers are entitled to a nil rate bond of £1,000 far savings income. ‘The starting rote bond and the savings income nil rate band use the basic rate and higher rate | bands, 2 B Charles's parsonal allowance is adjusted as follows: E 12,570 Personal allowance Tota income = net incorne Less. Gross gift ad 112,400 [800) ANI Less: 131,600 Income limit (106,000) Reduction of PA 11,600 50% (5,800) 6,770 Adjusted PA a Tutorial note 1 Chariteble donations under gift aid are grossed up before being used in the adjusted persona! allowance computation. The gross figure |s given in the question so there ts no aeed to grass up the figure given. (2 As the odjusted net income exceeds £100,000 the allowance is reduced by £1 for every £2 it exceeds the limit. Net income for these purposes is adjusted fi.e. reduced} for both gross gift aid and gross persong! pension contributions mace in the peor, 3 £5,883 (€50,270 = £12,570) » £37,700 x 10.25% 3564 (E122,400 — £50,270) = £62,130 2,019 3.25% 5,383 252 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 300 300 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO A PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 A Unused annus! afowances: 2019/20 (Nota member of ascheme} 2020/21 {£40,000 - £25,900} 2021/22 E ¢ 15,000 40,006 Tota! unused allawances b/F 55,000 Mlowance for 2022/23 49,000 95,006 Eg Tutorial note The total avaiable annual allowance is the allawance for the current tax year plus uoused ailowances from the prevwous three tox years, provided the tadividua! wos a member ofa pension scheme in the (ox year. Tutor’s top tips Always check carefully whether you have been given poymerts gross of net. 5 His basic rate barid for the tax year 2022/23 would have been increased by £8,600 in relation to this contribution, His taxable income for the tax year 2022/23 would have | been reduced by £8,600 i cee Punt Sin a nr re HM Revenue and Customs would have paid £1,376 into the pension fund on his behalf His personal sllowance would have incressed by £4,300 in the tax year 2022/23 es @ ve v | Tutorial mote Statement 2 fs incorrect because personal pension contributions do not affect taxable income. Instead basic rate tox reliefis given at source and higher rote reliefis given by extending the bose ond higher rate bands by the amount of the gross contribution of £8,600 (£6,880 = 100/30). KAPLAN PUBLISHING 283 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 301 301 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) | Statement 3 ts incorrect becouse HIV Revenve and Customs woukd hove contributed £1,720 Le. the basic rate tax deducted at source {£6,880 « 20/80). Statement 1 is correct because the bosic rate bond for 2022/23 is extended by the gross amount of the personal pension contributions (£6,880 12 00/80= £8,600). This reduces the | income faliing in the higher rate band by £3,600. | Statement4 is correct as Charfes” adjusted net income would have been £8,500 lower as a | resuk of deducting the grass persona! pension contribution of £8,600. This would increase the | personal allowance by £8,500 x 50% = £4,300 as the ANI in excess of £100,000 has decreased. 97 KIM BAXTER (ADAPTED) raf Wolk in the footsteps of a top tutor | Key answer tips | | This case OT involves the employment income rules, including benefits and deductions of expenses. it also covers qualifying interest payments and the marriage allowance, Benefits | | are a highly examinable area enc the detailed rules must be tearnt. 1 A Ordinary commuting {Le, travel between hore and the permanent workplace) does. not qualify for relic’, The travel to a temporary workplace qualifies as it is foro period lasting less than 24 months. Business mileage is therefore 10,500 miles (2,200+ 1,300), £ 3,780 Amount reimbursed (10,500 miles at 36p) Less: Approved mileage allowance: 10,000 miles at 45p 2 (4,500) SOO miles ot 25p (125} Allowable deduction (845} D £ 254 Interest payable at official rate (£14,600 » 2% « 10/32} 243 Less: Interest actually paid (£14,600 = 0.75% x L0/12) (91) Taxable benefit 182 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 302 302 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 Tutor's top tips | Where o benefit has only been available for part of the tox year, it must be time apportioned. 3 £590 £ E £ Higher of: Market value when gifted Market value when first made evatable 200 BOO Less: Use of asset benefit: 2023/22 {£800 « 2035) (160) 640 —_— 4 640 Less: Price paid (30) Trzabte benefit 590 A Emplayment income = total income Less: Rehef for interest paid [Note) Net income Less! PA Taxable income Total £ 25,659 {149} 25.520 {12,570} 12,949 <>) Tutorief note The loan interest paid of £140 is elgible for relief since the foan was used by Kim to finance expenditure for o qualifying purpose. KAPLAN PUBLISHING 255 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 303 303 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {FA2022) 5 Richard Kim _ Personal allowance reduced by £870. | Personal allowance reduced by £1,260 ¥ _ Personal allowance increased by E870 Personal allowance increased by £1,260 _ | income tax Habiney reduced by £174 | Income tax lability reduced by £252 v Ea Tutorial note The effect of the matriage allowance election is that the: is transferring spouse's PA is reduced by the fixed amount of £1,260 (for the tax year 2022/23} is the recipient spause’s income tox fiahiity is reduced by ao moximum of £25? [£1,260 MA & 20% BR icone tax) | Note that there is no provision for tronsferring less than the fixed amount. INCOME TAX BASICS AND INCOME FROM SELF-EMPLOYMENT 98 FOO DEE |ADAPTED) | Key answer tins | This question covers both the rules for income from employment and sel-emplayment, | trequires a Smole adjustment of profit and capital allowances cornputation, which should | mot have caused any problems if you remembered that itis 9 Imonth accounting period and therefore the maximum AIA and WDAs are time apportioned. 256 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 304 304 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL 1 INSURANCE QUESTIONS: SECTION 6 BE COz emissions rounded down to 135 grams per kilometre, availadia 9 months % 20 Dlesel 2 Plus: (235 - 55)« 4/5 16 Appropriate percemage 36 Car benefit (£19,000.« 36% x 9/12) 5,130 Fuel benefit (£25,300 « 36% x 9/12) 6,831 8 £ Crernight expenses paid when working away In the UK (£6 x 14) a4 Employer pension contributions (6%) 0 a4 <I Tutorlat note The exoenses paid ta Foo exceed £5 per night therefore the full amount is 9 taxable benefit, ifthe amount pal to cover overnight expenses in te UK was SES per night it S fully exempt. Pension contributions made by an employer are an exempt employment benefit. 3 £138,954 Trading profit ~ 9 m/e 30 September 2023 £ Net profit Depreciation 3,500 Legal fees (capital re acquisition of restaurant) Privete accommodation {£12,800 = 1/4) 1,400 3,200 Trading profit before capital allowances KAPLAN 130,854 PUBLISHING 138,954 287 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 305 305 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION 4 (FA2022) A Capital allowances — nine months ended 30 September 2023 Private use car £ Adiditions (no AIA} Car {i -502/km) WDA (18% x 9/12) 14,600 (1,971) TWOV c/f 12,629 Total allowances Allowances £ =x 70% 1,380 1,330 te Tutorial note 1 The WDA is time apportioned by 9/12 as the accounting penod (5 only 9 months long, |\2 Capita! ollowences an car purchases are colculoted based on C03 emissions. As the car purchased in this ki#ometre, it is eligible for a short accounting nerlod and proportion of the sfowence question has CO: emissions of between I — SO grams per WDA ot 18%. The WDA then needs to be adjusted for the for the peivote use by Foo Dee, os only the business use can be claimed. Ed Tutorial note | Foo starts to trode an J Jonvary 2023 which is in the tox year 2022/23. The bosis period for | the first tox year of trading is therefore 2 Joruary 2023 ta 5 April 2023. The time linwt for notifying HM Revenue end Custams of chorgeabilty és six nronths from the | end of the tax yoar in which the liability orises Le. $ October 2023, The filing date for the tex return (s 32 January following the end of the tax year ie. 3] January | 2024 for the tax year 2022/23. 258 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 306 306 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 PRACTICE SECTION C CONSTRUCTED RESPONSE QUESTIONS INCOME TAX BASICS AND EMPLOYMENT INCOME 99 JASON ret Wolk in the footsteps of a top tutor Key answer tips Part (a}tests the advantages and disadvantages of payrolling benefits. Only one of each was required for two marks, Two short but accurate sentences should be sufficient to gain two marks, Two advantages are shown in the answer below, Dut only one is required for full marks. Part (b} requires a comparison of two different employment cptions and the income tax on each, It is not mecessery to do full income tax camputations, as Jason is clearly an additional rate taxpayer, and therefore the difference in his income tax can be calculated at the marginal rave, Part [c) ts a written question regarding form PAS. tt asks for both the purpose anc content of the form, so it is important to cover both to get two marks, {e) Advantages 1 There ismo need to declare payrolled benefics on an employee's self-assessment tax return. 2 Employees will not have any unexpected tax liabilities in respect of the taxable benefits that have been payrolicd, Disadvantage 1 {b) Tax will generally be due earlier under PAYE than if tax was collected under self, assessment. Initial plc ~ Jason's employment income 2022/23 Salary Employee pension contributions £ 180,000 (&,000} 172,000 Bonus 15 March 2022 - 15 March 2623 Staff canteen (Exempt) Employment income KAPLAN PUBLISHING 0 24,000 0 195,000 259 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 307 307 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) ig Tutorial note The bonus of £74,000 will be treated as recelved during 2022/23 becouse Josot will become entitied to #t during this tax yeor. Similarly, the bonus of £22,000 will be treated os received during 2021/22. Subsequent pic - Jason's employment income 2022/23 Salary Emmoyer pension contributions £ 205,000 o Car benefit (52,500x 1436} Living accernmodation — Annual value (4,800 * 4/12) 8,750 1,600 ~ Acktitional benefit (see working} 1,400 Heneficial loan (140,000 x 2% « 8/12) 1867 Ein aloyment income 218,617 32 = Tutorial note The car Benet is catculoted at 14% as # is a hybrid-electric car with COz ernissians berween I ond 50 groms per kitometre ond an electric range of fess than 30 miles. Additional income tax Jeson is an additional rate taxpayer under both ernployment alternatives, so he will have to pay £10,178 ((218,617 — 196,000) at 45%) more in income tax If he takes up the offer of employment with Subsequent pic, Working —Living accommodation additional benefit £ Value 6 Apnl 2022 Improvements limit 285,000 o (75 000) 210,000 Additional benefit 210,000 at 2% x 4/12 260 1,400 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 308 308 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE OU ESTIONS: SECTION 6 ig Tutoria! note The living accommodation cast in excess of £75,000 sa there is an additional benefit. Since the property was purchased by Subsequent plc more than six years before first being provided to Jason, the benefit is bosed on the market volue when first provided, The improvements were incurred prior to then, 30 ore not included as they are already reflected in the morket volue at the dote first provided to Jeson. (ch 1 Form P45 will show Jason's tavable eamings and incame tax deducted up to 14 March 2022, together with his tax code at this date, 2 Jason will give 3 copy of the form to Subsequent pic so that they can correctly calculate his PAVE for the remainder of 2021/22. ACCA marking scheme ; Marts fa} Jason Sdvamtages— eather advarrage for 2 mark iA Otsadvartage 10 Maeimom ) 2.0 Gritial ple— lason's employment Wome 2022/23 Saleey Enployee pensian contebutioes os os Bonus — 15 March 2022 Bonus — 15 March 2023 oS OS Statf canteon c3compt os Subsequent clc—Jasan's employmenk income 2022/23 Salery os Employer pension contributions asnmrpt Car benefit Living accommodation annual value OS 10 4.0 tiving Uving Ling iving 1.0 Do os 2.8 accoremodation accommodation accoremodation accoremadston addhiosal addriossl additional additions! benefit ~ vaue benotit ~ Improvements cxcluded benefit - limit benefit-— benefa Benediciat foan 35 Additions! Incosse tax 10 110 (c) 1 2 PMS contents Purpose of PéS io 1.0 2.0 | KAPLAN Total PUBLISHING 1s.o = 261 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 309 309 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) Examiner's report The income tax question involved Jason. He was employed by Initial plc as a sales manager, but was considering resigning on 14 March 2022 and taking up an offer of employment with Subsequent pic which would commence on 15 March 2022. If employed by Subsequent pic, Jason would receive a higher base salary and more benefits compared to remaining employed by Initial plc. However, Jason wanted to Know how much more income tax he would have to pay should he take up the new offer of employment: Part (3) for2 marks required candidates to state one advantage and one disadvantage for an employee if thelr employer payrolied the taxable benefits provided to the employes, This section was not particularly well answered. Rather than just being asked to explain payrolling of benefits, candidates are alto expected to know the advantages and disadvantages tf an employer payrolls the taxable benefits provided to. an employee, For example, an advantage to the employee could be either: . There is no need to dedare payrolled benefits on the employee's self-assessment tax retum, oF . The employee will not have any unexpected tax liabilities in respect of the taxable benefits which have been payrotied. And 2 disadvantage would be: * The tax due on the benefit will generally be paid earlier than if collected uncer selfassessment. Part |b) for 12 marks required a calculation of how much more income tax Jason would have had to pay for the tax year 2022/23 If he took up the offer of employment with Subsequent pic rather than remaining employed by initial ple This section was reasonably well answered. . Candidates should simply list amy exempt items within the main computation and indicate as such by the use of zero {0} — not by an explanation. . Eventhough there might onty be a mark for recognising an exemption, itis important to know the various axernptions so that time is not spent in producing more compliested workings. * Candidates should note that many of the workings for this style of question can be included within the main computation. For example, the beneficial loan working (140,000 x 2% x 8/12 = £1,867), The only aspect which warranted 3 separate working here was the living sccommodation additional benefit. . With computations containing bath additions and deductions, candidates should be very careful to indicate which is which. A single column approach with deductions included as such on the spreadsheet avoids any confusion. . Jason was clearly an additional rate taxpayer under both employment alternatives, so the extra amount of income tax payable was simply the difference between the two amounts of employment income multiplied by the rate of 45%. Producing two income tax workings notonly wed more time; but meant that a mistake was much more Gkely, Practice as many computations as possible. If this is done, straightforward workings for the main benefits should become second nature, meaning that marks can be obtained quite quickly without making any basic mistakes. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 310 310 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Part (c) for 2 marks required candidates (if Jason dedded to resign as an employee of Initial ple) to explain the main content and purpose of PAYE form P45. This section wes not particularly well answered. If a requirement is just for two marks, then just 4 few brief points are required in an answer. OF course, it is also important to know the difference between the different PAVE forrns, The following enswer would have been sufficient: 100 . Form P45 will have shown Jason's taxable earings and income tax deducted up to the date of leaving, together with the tax code at this date. . Jason will nave given 3 copy of the form to Subsequent pic so that they can correctly calculate PAYE for the remainder of 2021/22. POPPY Key answer tips This section C question covers partnerships and admimistration, employment income, the accrued income scheme, Part {a) offers some easy marks for calculating basic employment benefits, but also has some trickier marks on the accrued income scheme, Do your best hare and move on! Part (b) focuses on the administration of tax for employees. Administration can represent quick and easy marks in the exam if you have learnt the rules. So make sure you know them. Finally, part {c) looks at interest and penalties in respect of late peyrnent of 4 balancing charge. Elements of the self-assessment system are often tested, so make sure you know the Implications H deadlines are not met, as well as what the deadines are. {2) Taxable income 2022/23 E Employment income Salary Car benefit (21,800 x (20% + 49¢} x 8/12) Mobile telephone (480 x 20%) 65,000 3,488 6 68,584 Savings Income {40,000 at 3% = 3/12) 300 68,884 Loss rebef (working) Personal allowance Taxable income KAPLAN SUBLISHING {9,350} {22,570) 46,964 263 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 311 311 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—-UK> TAXATION (FA2022) id _ Tutoria! note 1 The exemption for mobile telephones does not apply to the second telephone. 2 Under the accrued income scheme, Poppy must include the accrved interest from the gifts os savings income for 2022/23, even though she Aes not received any octuel interest. 3 The cornpany car is a diesel car that does not meet the real driving emissions 2 (RDE2) | standard, and hos on offical CO; emission rate of 75 grams per kilometre. This means that the stendard percentage of 16% plus 1% for every 5 grams per kilometre over 55 grams ({75-55)/5) = 4%. As the car does not meet the RDE2 standurd an additional 43 needs to be added. Working — Trading loss £ Trading loss Bslancing eBowance 19,500 ({8,400 — 5,400) x 30%} Revised trading Jass 900 20,400 Profit share 6 April 2022 to $ July 2022. 6 July 2022 to S April 2023. 20,400 3/12 1/3 -20,400« 9/12» 1/2 1,700 7,650 9,350 ib) {c) 264 1 Because Poppy's benefits are payrolled, the related income tax liability will have been collected under PAYE slong with the tax on her salary. 2 Payrofied benefits do not have to be reported to HMRC otherwise, 1 interest will be charged for the period 31 January 2023 to 31 August 2023, sa the charge will be £49 (2,600 x 3.25% « 7/12). 2 Twe penalties of £130 (2,600 at 5%) will be imposed on the balancing payment, one when it Is one month late and the other when It is x months late, on form P11LD or KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 312 312 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Marking scheme Marks ta) Tmaible izcame Sdary Car borwfit Mobile phone Sevings income o5 2.0 Lo 5 Loss relief Personal allowarce os aS Trading oss as Vtorking trading toss: Balancing allowance Profit share L.5 2.0 300 tb) Payrofied benefits Collected under PAYE No reporting required L.0 Lo 10 (rs) Balancing payments interest and penalties Calculation of mvterest Penalties on late payment LS LS 20 Total 150 Examiner's report The income tax question was based around Poppy who was employed by Zune pie and was ako a member of a partnership. Zune ple provided Poppy with a diesel car (not meeting the real driving emissions 2 (RDEZ} standard) and two mobile telephones. These benefits were all payrotied. Poppy had been in partnership with Rose and Teasel, but Teased resigned es # partner on 6 July 2022; the partrers alweays sharing profits and losses equally. For the year ended 5 April 2023, the partnership had a tax adjusted trading loss (before taking account of capital allowances), The partnership's only ossct was 0 car used by Poppy which wes sold on 32 July 2022, Poppy's only other income wes the accrued interest from gilts which were purchased on 1 January 2023 and sok on 31 March 2023. The three requirements were all fairly straightforward, so it was surprising that this question was not better answered. Requirement (a) — 10 marks Although the employment aspects of this requirement were well answered by most candidates, a number of candidates struggled to correctly allocate the trading loss. The interaction of capital allowances and loss relief was @ particular issue. The calculation of the accrued gilt income also caused problems. . The car benefit should have represented two easy marks, but some candidates omitted the 4% diesel surcharge, and the restriction by &/12ths (the car only being provided for cight months} was also sometimes incorrectly calculated or omitted akogether, * Most candidates recognised that onty one of the mobile telephones was chargeable, but the 20% bast of tax charge was less well known, KAPLAN PUBLISHING 265 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 313 313 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) With regard to the trading loss, very few candidates appreciated that the balancing charge from the disposal of the car had to be acided to the trading loss before allocating the resultant loss. The balancing charge was simply: * . * The brought forward written down value of £8,400 Less the sale proceeds of £5,400 Restricted to the business use proportion of 30%. Many candidates overcomplicated this working by clalming allowances prior to the disposal, with others not even realising there was a balancing event. Having calculated a revised trading lass, the profit allocated should have been quite Straightforward. However, candidates often wasted time by not restricting their calculation to just Poppy's share of the £20,400 loss. The shares for Rose and Teasel were not relevant and their calculation did not score any marks. With Poppy recelving one-third of profits and losses for three months, and 50% thereafter, the calculation for 2 marks was amply: {£20,400 = 3/12 x 1/3) + (E20,400 x 9/12 « 1/2} = £9,350 When it comes to calculating accrued interest, candidates should remember that the relevant figures are the nominal value and the interact rate. The gilts had a nominal value of £40,000, an interest rate of 3%, and were owned for three months. The accrued interest calculation for 1.5 marks was therefore: £40,000 at 3% « 3/22 « £300 Requirement (b) — 2 marks This requirement was answered quite poorly, . . For the first mark, candidates simply had to say that the related income tex liability Is collected under PAYE (or through payroll). For the second mark, It was necessary to state there Is no reparting on form P11D, Although some candidates picked up the first mark, very many candidates then went on to say that reporting on form P11D {or some other form) was required. Requirement (c} — 3 marks This requirement was generally well answered by most candidates. The key point was appreciating that the due date for the balancing payment was 31 January 2023, so the payment was made seven months late. The interest charge was therefore £2,600 « 2.6% = 7/12 = £39 for 1.5 marks, A few candidates used the official rate of interest rather than the rate for underpaid tax. As regards penalties, there were two 5% charges; the first for being one month late and the second for being six months late. Candidates should realise that where than two or three short calculations related to the Information provided, penalty rules in general Is not going to a requirement is just for three marks, then no more or sentences are required Also, answers should be so a jong, detailed, explanation of the interest and score well. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 314 314 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 101 TO KIONI PRACTICE fe INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 Walk in the footsteps of a top tutor Key artswer tips This ls a multi-tax question with only one requirement covering two possile scenarios. it therefore very important to set Gut the answer dearly, showing which scenario and which tax each part of the answer Is dealing with, The first option « for the company to pay an increases pension contribution on Kiont’s behalf. The tax imiptications are relatively straightforward, a it will be exempt income for Kioni, The second option is for the company to pay increased directore’ remuneration and for Kiani to make a personal pension comtribution This is more complex, end itis Important to think through all the implications on each of the different tax liabilities ae re r a re ee © a ——— Company pension scheme i KGoni's income tax fiability will remain unchanged at £21,807 because the pension contribution will be an exempt denefit. 2 The class 2 national insurance contributions (NICs) for both Kiont and Nikio Lec will alsa remain unchanged at £4,628 and £5,779 respectively, 3 Nikio Ltd's revised corporation tax lability will be €25,200 ((€ 100,000 ~ £20,000) at 19%) Tutorial note Ihe corporation tox Itability could alternatively be calculated as 29,000 — {20,000 ot 19%) « £15,200, KAPLAN SUSLISHING 267 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 315 315 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) Personal pension contribution 1 Kions revised income tax fadility will be: E Director's remuneration (£47,500 + £20,000} Dividend income 67,500 68,000 135,500 Personal allowance (see working) (4,820) Taxable income 130,680 Income tax £ 37,700 at 20% 7,540 20,000 at 20% (additional BRB due two personal pension contributions) 4,000 4,980 (£67,500 — £4,820 - £37,700 ~ £20,900) at 40% 1,992 2,000 at 0% 0 66,000 (£68,000 — £2,000} a4 33.75% 22,275 130,620 Income tax liability 35,307 Working - Personal allowance £ 12,570 Persons! allowance Reduction ((£235,500 ~ £20,000 Reduced personal allowance ~ £100,000}/2) (7, 750} 4,820 1 oy Tutorial note i 2. The personal pension contribution of £20,000 reduces Kioni's adjusted net income. Persone! pension contributions are mode net of bosic rote tax, so there will be o saving of £4,000 /£20,000 at 20%) compared ta making o gross cantribution to a company pension scheme. This ‘s. because Kion) will only need te moke a net contribution of £16,000 toa personal pension scheme. The soving wil cance! out the increosed income tox liability of £4,000 [£35,807 - £31,407), 268 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 316 316 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL 2 INSURANCE OU ESTIONS: SECTION 6 Kion!’s revised employee cass 1 NICs will be: £ 37,700 (£50,270— £12,570) at 13.2556 17,230 {£67,500= €50,279) at 3.25%: Oass I Nis 3 Nikio Ltd’s revised employer's class 1 NICS will be £8,789 (£5,779 + £3,010 {£20,000 at 15.05%). 4 Nikio Ltd’s revised corporation tax liability will be £14,628 ([£100,000 - £20,000 £3,010).at 19%), ~ ee Tutorial note The corporation tox liability could alternatively be caleulated as £19,000 ~ ({£20,000 + £5,010} at 19%) = £24,628. ACCA marking scheme Marts ‘Kioni Company porsian schame 1 2 Inco tax Chass 1 UKs os os 3 Corporation tax OS Parsona! pension comriistion t Incame tax Director's reamunerarion Diidend Income / os BS Basic rate tax an emdloyeoernt incoene os Extended bask rate Gand cue to PPC oS Higher rats tax on erployment income Dividend ell rate bard Higher rate tax on cxdends Reduced personal allowance Os 0.5 os 2.0 2 Class Lemptoyee's Nie is 3 ings 1 eerplayer’s NICS os a Corpoesticn tex Total KAPLAN PUBLISHING 10 194 269 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 317 317 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) | Examiner's report This question involved Kioni who Nikio Utd. The requirement was making a pension contribution of | with paying additional director’s personal pension contribution of was the managing director of, and 100% shareholder |n, to compare a corporate pension contribution (Nikio Ltd £20,000 into a company pension scheme on Kioni’s behalf) remuneration of £20,000 and Kioni then making a grass £20,000. Figures for income tax, class 1 Nis and corporation tax payable prior to making either pension contribution were provided. Guidance was given as regards where full tex computations were required (income tax and employee class 1 NIC computations in cach _ case}, and candidates were required to state if any of the four given tax and NIC figures would remain unchanged. | The question for 10 marks was reasonably well answered. Candidates should always read and follow guidance notes provided in the requirements. Doing so will make sure that the night computations are produced without spending time working on Computations where figures are either given or where a straightforward stort| cut approach is available. For example, a figure of £5,779 was gen for employer's class 1 NICs. With additional director’s remuneration of £20,000, the revised figure was simply | £8,789 (€5,779.+ £3,010 (£20,000 at 15.05%)). There was no need to redo the full | computation. The fact that this was not requested should have guided candidates towards the short-cut approach, The interactions involved in this type af question can often cause problems, For example, the director's remuneration of £20,000 reduced Nikio Lto’s taxable total profits, but was then taxed as income in the hands of Kioni. This is why an article has been published covering | many of the scenarios which could be examined, As regards the corporate pension contribution, the only change to the existing tax figures was that Nikio Ltd's corporation tax liability was reduced as a result of making the pension _ contribution of £20,000, As regards paying additional directors remuneration follawed by a personal pension contribution, the mast complicated aspect here was the restriction to Kioni’s personal allowance, with the personal pension contribution of £20,000 reducing Kioni's adjusted net income. Abo, some candidates did not appreciate that the personal pension contribution | would have no impact on NICs. This shows the importance of carefully considering the impact _ of all the information provided. 102 PATIENCE (ADAPTED) @ Walk in the footsteps of a tap tutor Key answer tips This question required the computation of income tax and capita! gains tax for an individual with employment income, self-enployment income and property incorne. | A calculation of the various types of income was necessary in order to complete the income | tax computation. | There were two marks available for a basic capital gains computation on the disposal of the "two rental properties, 270 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 318 318 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIG NAL INSURANCE QUESTIONS: SECTION 6 | Tutor’s top tips You are required to celculote employment income, self-employment income and property income for inclusion in the income tax computation, Start with your strongest of the three orees as if does not have to be completed ina set order. Remember to clearly show your workings to enabie the morker to award marks where mistakes have been mode. Patience — income tax computation £ Employment income Safary (£3,750 « 9) Pension contributions 33,756 — Patience {£33,750 « 6%) ~ Employer School place — cost to employer (marginal cost) Long-service awerd Beneficial loan (2,625) 0 31,725 540 CG 0 Employment income 32,285 Trading profit (W1) Pensions (£1,450+ £6,000 + £3,300} Property business profit (W3} 16,100 10,750 3,500 Total income Personal allowance Taxable income §2,615 (12,570) 36,045 c 42,200 (W4) x 20% 7,845 x 40% 8,440 3,138 50,045 Income tax liability KAPLAN PUBLISHING 11,578 271 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen= d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 319 319 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) kg Tutorial note 1 A nan-cash lang-service award is nat a taxable benefit if it (s for a period of service of ot feast 20 years, and the cost of the award does not exceed £50 per yeor of service. 3 There is 70 taxable bencfitif beneficial loons do not exceed £79,000 during the tax year. Workings (W1) Trading profit £ £ 14, 00 Year ended 31 July 2022 Period ended 31 December 2022 Balancing allowance (working 2) 6,900 {2,903} 5,000 15,800 Rellef for overlap profits {3,700} 16,100 (WZ) Capital allowances TWDV brought forward Addition —Laptop computer Main pool Allowances £ é 2,200 1,705 Proceeds (£2,200 + £800) {2,009} Balancing allowance {1,200} 1,900 1 r Tutorial note T There is na annual investment allowance, 100% FYA ar writing down allowance ovallable in the fina! capita! allowances computation. Additions are included in the relevant pool at cast. The dispasol proceeds ore deducted to coicuiote o balancing ailewance/charge on al! columns on cessation of trade\2 272 The closing year basis period rules must be applied in the final tax year of trade. The final assessment locludes ony profits not yet assessed fess overlap profits fram commencement af trade. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 320 320 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO (W3) PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Property business profit £ Rent received (£2,600 + £7,200} £0,800 Expenditure [£4,700 + £2,600) {7,300} Property business profit (W4) 3,500 Basic rate band £ 37,700 Basic rate band Add: Gross personal pension contrbutions (£3,600 x 100/80) 4,500 Extended basic rate band 42,200 Patience ~ capital gains tax computation £ Property 2: Proceeds Less: Cost E 122,000 (81,400) 40,600 Property2: Proceeds Less: Cost 98,000 (103,700) (5, 790} Net gains Annual exempt amount Taxable gain Capital gains tax [£72,600 x 2894) 34,900 (22,300) 22,600 6,328 = Tutorial note Gains on residential properties are taxed at higher rates than other gains, the rates are provided in the tax tables, Patience is a higher rate taxpeoyer so the gain is oll taxed ot 28%. KAPLAN BUSLISHING 273 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 321 321 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK>: TAXATION (FA2022) Examiner's report This was the income tax question. it: was well answered, and involveda taxpayer who had retired during the tax year, ceasing both employment and self-employment. The requirement was to calculate the income tax and capital gains tax liabilities for the tax year. Two aspects to this question caused particular difficulty. Firstly, many candidates treated the pansion income {state pension, amployer’s occupational pension scheme and a private pension) as exempt income. Secondly, the format in which information was given for two properties caused 9 certain amount of confusion, with the information relevant for income tax and the capital galns tax details being shown within the one table; candidates being required to saparate out the relevant information for income tax and capital gains tax purposes. Here figures wera often duplicated, with, for example, revenue expenditure being {oorrectly} deducted as an expense in calculating the property business profit, but then also (incorrectly) deducted in catoulating chargeable gains. ACCA marking scheme | Salary less employee persion contributions Marks 10 Employer's persion contribwtions exempt Scheoi place as 19 Lang coruite award as Beneficial loan Trading profit year ended 33.7.2022 as os Trading profit period enced 31,12. 2022 Geduet averlap profits Capital allowances — TWO bf as 10 as Capital ollowances — addition Capital allowances ~ dis posal proceeds Capital allowsnces— batencirg sticwance as 10 Lo Property incorns ~ rental income a5 Property inoree ~ experdes Peraion income as 10 Personal allowance os Extend une 19 iv is Gain on aroperty 1 as Gain on property 2 as AEA CGT st 26% os as Total 1.0 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 322 322 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 103 KAGAN Key answer tips This question i a typical ‘new style’ question where the focus was spread across three taxes, IHT, CGT and mcome tax. Students needed to be especially careful not to mec up the rules for IHT and CGT In part ja) students needed to remember to work in the margin to calculate the revised tax liability and not waste time reworking the income tax lisDilty m full, Fairly straightforward computations were required to calculate the tatal tax under in part {b} as long as Audents remembered to factor in the large personal pension contribution, {a) Kagan’scevised income tax tiability for 2022/23 wil! be £170,194 (166,950 + ((25,3002,005) at 39.35%). (b} {i} = The base cost of the chares will bo their value at the time of the aunt's death (£510,000), so the minimal increase in value & likely to be covered by Keagan’s annual exentpt amount of £12,300, {ii} Kagan ~ Income tax liability 2022/23 Employment income Penson lump sum Premium bord prizes Interest from ISA Property income Dividend income £ 400,000 0 0 0 3,600 1,950 423,550 Personal silowance Taxable income KAPLAN SUBLISHING 0 411,550 275 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 323 323 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK>: TAXATION (FA2022) Income tax £ 37,700 ot 20% 100,000 at 20% 7,540 20,000 112,300 at 40% 159,600 (411,550= 1.956 = 100,000~ 150,000) at 45% 44,920 71,820 1,950 at 0% 0 411,550 income tex ltabiity (ce) i 144,780 The amount invested in the pension fund (and not withdrawn) will be outside of Kegan’s estate, reducing the potential IHT liability, 2 The investments in pretium bonds, the ISA and the freehold property will nor affect Kagan’s potential IHT llability because one asset Is simply being replaced with another of equivelent value, ACCA marking scheme (ap {bh} Revised Income tac tabinty (0 (1) Marks 19 CT impact 10 Empioymert kxome os Persion lump sam Premium bond prizes SA internst Property income os os os os Dividend income os Personal allowance Income tak ability os 25 Do ) Pension 4und outside of actate io Ne lenpeet ois HT Rabiliry 10 Total 276 16 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 324 324 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Examiner's report Part {a) for 1 mark required candidates to calculate Kagan's revised income tax liability for the tax year 2022/23 if he retained the inherited shares. Although fairly well answered, many candidates used valuable time doing full before and after tax computations. Kagan was clearly an additional rate taxpayer, so all that was required was to calculate the additional rete tax due on the dividend income and then add it to the provided figure of tax on the employment income Part (bi) for 1 mark required an explanation as to why little or no capital gains tax would have been payable if Kagan had sold some of his Inherited shares. This was because assets ate inherited at the value at the time of the deceased's death. If these assets are sold scan after being inherited, there will generally ba: a minimal increase in vabue (this fact was stated in the question), so any gain is kely to be covered by the annual exempt amount. tt was pleasing to see that this part was well answered by those candidates who appreciated the tax treatment. Part (bili) for 6 marks required a caloulatian of Kagan’'s revised income tax liability for the tax year 2022/23 if he sold some of his inherited shares and rnade the four alternative investments. This section was reasonably well answered, but several points should be noted: The question stated that a full tax computation was required, so exempt items (pension lump sum, premium bond prizes and the interest from the ISA) should simply have been listed within the main computation and Indicated as such by the use of zero (0} — not by an explanation, . The non-availability of the personal allowance should have been indicated in the same manner. There was no need to justify the non-availability given the level of Kagan’s income. * Although there might only be a % mark available for recognising an exemption, It ls important to know the various exemptions so thet time is not spent producing unnecessary, and more complicated workings — such as applying the savings income nfl rate band where the interest fram the ISA was Included as savings incame Part (c) for 2 marks required candidates to state for each of the four alternative investments whether the investment would reduce Kagan's potential inheritance tax liability compared to hin retaining the inherited shares. Unfortunately, this section was not well answered, Candidates need to remeber, that unlike other taxes, there are few exemptions from Inheritance tax. Tharefore, the replacement of the quoted shares with either premium bonds, an SA or freehold property would not have changed the value of Kagan's chargeable estate. However, the investment in the penzion fund {which & not withdrawn) would have been outside of Kagan's estate, thereby reducing his potential HHT Hlability. KAPLAN PUBLISHING 277 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 325 325 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 104 DILL{ADAPTED) fe} Watkin the footsteps of a top tutor | Key answer tips Part {a} tests the residence rules for Individuats. The tax cates and allowances show the required number of ties based on the time spent in the UK. You could have passed this part of the question using this information, In the answer the highlighted words are key phrases | that markers are hooking for. Part (b) has a very straightforward computation of taxable income including a chssic employee benefit section, (a) Dill was resident in the UK during the three previous tax years, and was in the UK between 46 end 90 days, so did not meet any of the automatic tests in the tax year 2023/22. She had two UK ties, which are havinga house in the UK (which she made use of in the tex year 2021/22) and being in the UK for mere than 90:-days during the previous two tex years. Dill was therefore not resident in the UK in the tax year 2021/22 because she had fewer than three UK ties. (b) Dilt— taxable income £ Employment income Salary Employer's pension contnbution Occupational pension contribution (W1} 290,000 0 [14,000) Bonuses (£16,200 + £23,300) 45,500 Company gym Home entertainment system (£5,900 x 20%) Workplace nursery 0 1,180 9 Beneficial loan (€80,000 x 2% x 10/12) 1,333 Heath club membership Mileage allowance (W2) 950 (1,625) 323,378 Premium bond prze Interest from sowings certificate 0 0 Total income Less: Loss relief 323,378 [58,060} 265,378 Less: PA {0} Taxable income 278 265,378 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 326 326 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATICNAL INSURANCE QUESTIONS: SECTION 6 Workings 1 Occupational! pension contribution As Dill has adjusted income in excess of £312,000 she B only entitled te an annua! allowance for the tax year 2022/23 of the minimum amount of £4,009, ‘The maximum therefore: contribution before incurring an annual allowance charge & £ Brought forward annual allowance from 2021/22 2 19,000 Current year annua allowance 4,000 Less Employer's contribution 23,000 (3,000) Maximum emptoyee contribution 14,900 Mileage allowance The mileage allowance received will be tax-free, and Dill can make the following expense claim: E Approved mileage allowance: 10,000 miles at 45p 4,500 miles a 255 Loss: Mileage allowance received (16,000 at 2725p) Allowabie deduction 4,500 3,225 5,625 (4,000) 1625 >“Y Tutorial mote Exempt benefits must be stated as such in your answer or shown os o benefit of niiin order to score the morks ovailabie. Employer's pension contributions are an exempt benefit for the empioyee. Relief for employee occupational pension contributions Is given by reducing employment income, which is a different method of relief from personal pension contributions where the bosic rate bond is extended. Bonuses are taxed on the carfer of the receipts and the entitlement basis. In this question the entitiement is earlier in both cases ond consequently both bonuses are taxable in the tax year 2022/23. Dill is entitied to relief for her business mileage only using the approved mileage rate scheme. Loss relief claimed in the current year is copped at the higher of £50,000 and 25% of adjusted total income {25% * £323,378 = £80,845). Thus there is full rewef for te £53,000 loss against total income: KAPLAN PUBLISHING 279 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 327 327 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) Examiner's report Part {a) for 3 marks required candidates to explain why Dill was treated as notresdent in the UK for the previous tax year. Although reasonably wall answered, very few candidates managed to pick up afl the available marks for this section, For example, most candidates sinply stated that Dill had been in the UK for 60 days, rather than indicating that this fell in the 46 to 90 day band from the tax tables, A number of candidates wasted time by explaining the automatically resident and not resident tests, when it was obvious that these were not relevant, Then when discussing UK ties, some candidates focused on those ties which were not met, rather than those which were. The three marks available should have been a clear indication thata long, detailed, explanation was not required. Part (b) for 12 marks raquired candidates to calculate Dill’s taxable income. Th saction was general) answered very well, with many problems included: candidates achieving high marks. Common — Not spprecoting that the benefit of a workplace nursery is an exempt benefit, - Treating subscriptions as benefits rather than as deductions, - Omitting the personal allowance. Even when shown, it was obvious {given the level of Dill’s income) that the personal allowance was not available, so all that was needed Was a taro entry. There was no need for an explanation or a calculation of the reduction to nil, - Hf a question requires just 3 cakulation of taxable income, then that is where candidates should stop. Calculating the income tax lisbility just wastes valuable time. — Agsstated in the requirements, candidates should always clearly Indicate (by the use of 8 zero) any items which are not taxable or deductible = such as exempt benefits, non- deductible expenses and exempt income. - Where a computation contains additions and deductions, candidates should be very careful to indicate which ib which. A single column approach with deductions shown in brackets avoids any confusion. = Candidates should think carefully about which workings can be Incuded as one-line calculations within the main taxable income computation, and which need their own separate working. The only aspects which warranted 3 separate working here was the mileage allowance. - The use of abbreviated numbers:such as: 45.5k instead of 45,500 for the bonuses should be avoided. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 328 328 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE OU ESTIONS: SECTION 6 ACCA marking scheme t4arks {al Automatic tests mot met Two UK ties BernificaGon af thes (0S each) Wot UK resent os less than 3 thes {by Employmect incare Seisry. Occupational pencior contribution honuses Gym Horne extertainment sestem Workplace suttery Beneficial loon Heath dub mempershio Mileage stowonce Premium bend harest fron savings certificate tose cetief PA 220 i560 105 RICHARD TRYER (ADAPTED) iat Walk in the footsteps of a top tutor Key answer tips This question requires 8 caleulation of the income tax payable for 4 taxpayer who has correctly completed parts of his income tax computation, but left the following omissions: 1 2 Carand fuel benefits Living accommodation 3 Property income 4 Income tax calculation Itis Important not to be put off if'a question is presented in a different format from those you have seen before; each one of these omissions tests areas that ere commonly examined In TX. KAPLAN PUBLISHING 281 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 329 329 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Tutor’s top tips The best woy to approach this questian is the some as any other income tax camputatian | question, by preparing an income tax carnputation in the normal columnar format, The | examining team hos chosen to give you some of the information you need !n the body of the | incampfete incame tax computation. You can scare easy morks by using these figures in your _ Own computation. You do not have te use the loyout presented in the question, There is a lot of information in the question which you must read carefully. Pay special attention to dates given to see If Income and benefits are avaliable all year ar must be time _ apportioned. Richard Tryer income tax computation = 2022/23 Nonsavings Savings income Dividend income £ £ Total income £ Employment income (\W1} Property income (\W4} 68,738 7.375 Building society interest (per Q) (Note) Dividends (Nete 1) 5,830 76,113 282 7,375 1,260 tess: PA (per Q) {12,570} Taxable income 63,543 £ 68,738 1,260 5,850 1,266 5,800 83,173 (12,570) 1,260 5,820 70,603 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 330 330 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 é 37,700 25,843 at 20% (per Q) et 40% 7,540: 10,337 63,583 3,800 at 0% {£1,260 — £500) at 40% at 0% Ro 500 760 2,008 {€5,800 — £2,000) at 33.75% 70,603 Income tax liability Less: PAVE (per Q) Income-tax payable 19,454 (19,130) 334 ta Tutorial note There is no need ta consider any potential issues In relation to the building society interest or | dividend becouse the question states that the completed parts of the income tox computation ore correct. Workings {W1) Employment income Salary (per question) Car Senefit (W2} Fuel benesit (W2} Living accormmodation (W3] Furniture {£12,200 « 20%) Runting casts Eaployment income KAPLAN BUSLISHING E 41,030 2,454 4,934 23,200 2,420 3,700 68,738 283 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 331 331 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (W2} Car and fuel benefits CO, ernissions = 103 grams per kilometre (rounded down to 105) and available al year. % Petrol 16 Pius! (105= 55)/5 10 Appropriate percentage 26 £ 47,950 List price of car £ Car benefit (£17,900 x 26%) 4.654 Lass: Contribirtion for private we {1,200} Car benefit 3,454 Fuel benefit (£25,300 = 26% = 9/12) 4,934 ca | Tutorlal note 1 Note that the fuel benefit s only given for part of the tax pear funiike the car itself which is available af year}. Hence the fuel benefit must be tne apportioned. |\2 = Thesostef providing the fuel ond the percentage that relotes to privote use is irrelevant for the purposes of calculating the fue! benefit, (W3) Uving accornmodation a ° The benefit for the living acconimodation is the higher of the annual value of €8,600 and the rent paid of £13,200 {£1,100 x 12). There ts no additional benefit because Prog pic does not own the property. Tutor’s tap tips The examining team hes included the market value of the !wing occommodation. This fs not | needed to cexulste the benefit becouse the property Is rented by the employer and not | owned. This information is included to test that you understand this point, so de not fall into the | examining team's trap ond try te use the market value. 284 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 332 332 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE {W4) INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Property income £ £ 12,000 Premium received Less: £12,000= 2% (30-1) (6,360) 5,060 3,320 Rent receved (£664 *5) 8,360 Roof replecement SBA {£3,400 x 3% « 4/12} Ba Ceiling repairs {£6,600 ~ £8,200) 400 Insurance peld SOL (985} Property income 7,375 = Tutorial mote The initial replacement cost of the: shap’s roof is copital in noture, as the building wos not in a usable state when purchosed and this foct was reflected in the reduced purchase price, This cost therefore qualifies for @ structures and building allowance ot 3% per annum from the time the shop wes brought inte use (ome apportioned in the first tax year in which the shop wars rented out by Richore), Remember thot procerty income for on individual is olways calculoted using the cash bosis unless the question specifies otherwise. Examiner's report The question was generally well answered, and candidates obviously benefited from taving 2 pro forma layout to follow. Many cantidates calculated an addtional benefit for the living accarnmadation despite such a charge not being retevant where a property is rented. Note: The examiner’s report has been adited to remave comments on elements of the question that have been deleted due to changes in legislation. KAPLAN PUBLISHING 288 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 333 333 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) ACCA marking scheme eee os 20 1s 29 os Running costs Assessment or aretnivn Rert recened as 15 10 Hoot replabement 1e Coiling repoirs as inzerance 106 Marks Salary Cer benefit Fusl bone fa Uving scoommoddion Furniture 19 Guiding society interest& dividends as Income tax payadio zs Total 15.0 PETULA (ADAPTED) fe Walk in the footsteps ofo top tutor | | Key answer tips This question covers the situation where an individual is employed and also earns property: | income, | Part (a) should have provided easy marks for the calculation of employment income as it | contained core areas. The property income calculation was also straightforward, providing you were familiar with replacement furniture reed The accrued income scheme Is based on the accruals principle so providing you practse | Questions on this ares & shoulda’t pose a problem, | Part |b} involved the caiculation of the anaqual allowance available to carry forward. You must e@risure you look out for individuals with 9 high level of adkusted Income as the annual _ allowance is tapered where adjusted income is greater than £240,000. 286 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 334 334 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL {a} INSURANCE QUESTIONS: SECTION 6 Taxable income E Employment income Salary Bonuses (£18,600 + £22,400) 270,000 41,000 Mileage allowance |V/1} 8,350 Emplayer pension contributions (exemot benefit) 0 Professional subscription Golf club membership Employment income (630) 0 318,720 Property income {W2) 11,340 Savings income {£255,000 at 3% « 4/12) 2,500 Total Income QuafStying interest paid 332,550 (140) Net income Personal allowance 332,420 0 Taxable income 332,420 oF Tutorial note The bonus of £21,200 will hove been treoted a3 being received during Ure tax year 2021/22 becouse Petula become entitled to it during that tax year, Under the accrued Income scheme, Petula must include the accrued interest from the gilts os savings income for 2022/23, even though she hos not received any actuol interest. No personal allowance is available herause Petula’s adjusted net incame af £332,420 exceeds £125,240. Workings {W1) Mileage aowance E Reimbursement (26,090 x 60p) Tax free amount 19,000 miles x 45p (4,500) 11,000 milesx 25p {2,750} Taxable benefit KAPLAN 15,600 SUBLISHING $,aS0 287 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 335 335 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (W2)} Property Income ft Rent received 12,000 Replacement furniture relief: - Washing machine - Dishwasher ($20) 0 Other expenses (1,640) Furnished room [£8,900 - £7,500) 5,940 1,400 Property income 11,340 oe of Tutorial note | No relief is given for that part of the cost of the wosher-dryer which represents an improvement over the ariging! washing machine. Retief is therefare restricted ta the cast of a | Similar washing machine. No relief is available for the cost of the dishwasher because this is the initia! cost of ¢ new asset rather than the cost of a replacement. Claiming rent-a-roan relief in respect of the furnished room is more beneficial than the _ normal basis of assessment (£8, 900 — £2,290 = £6,010). (b) Petula hes unused pension annual allowances of £4,000 from the tax year 2021/22 available to carry forward to the tax year 2023/24. Tax year Annual Contribution Unused/(Excess} allowance £ 2022/23 4000 £ £ 30,000 (25,000) 2021/22 40,090 30,000 10,000 2020/22 2019/20 410,000 40,000 30,000 30,000 10,000 10,000 Ed Tutorial note | Petula’s adjusted income for the tax year 2022/25 exceeds £322,000, so she is only entitled | to The minimurn topered annual allowance of £4,000 for this year, The annual allowance for the current year is used first, then the annual olowance fram earlier yeors starting with the earliest tox year first (i.e. on a FIFO basis}. The pension contributions in the tax year 2022/23 utilised the restricted allowance in ful! and | also the unused annuol aliowonces of the tax yeurs 2019/20 and 2020/21 and part of the annual allowance in 2023/22. She has £4,000 unused from the tax year 2021/22 to carry | forward to the tax year 2023/24. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 336 336 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Examiner's report Computation of an individual's taxable income With this type of question, candidates should think carcfully sbout which workings can be included as onetine calculations within the main computation, and which need thelr own separate working. Workings should always havea heading or be obviously Identifiable, rather than just (for example) be referenced to the bullet list numbers from the question. The use of abbreviated numbers such as $.35k instead of 8,350 should be avoided. Wherea computation contains additions and deductions, candidates should be very careful ta indicate which is which. A single column approach with deductions shown in brackets avolds any confusion, Any Items which do not require adjustment or where the entry is nil, should always be shown by the use of a zero. And if a resultis obvious, such as a nil personal allowance due to a very high level of income, all that ts needed Is a zero entry — there |s no need for an explanation or a calculation of the reduction to nil. Candidates need to appreciate that each source of Income is self-contained. It Is mot correct to show all the receipts from each source first (such as rent received), and then all the various expenses lumped together (such as property income deductions). For example, there should be a working for property income, with the one figure then Incudedin the main income tax computation. Pension annual allowances When calculating the amount of unused annual allowances, candidates should appreciate that they might need to take account of various factors such as: = The tapering of the annual allowance to 2 minimum of £4,000 where income exceeds £312,000. = The three-year restriction for the carry forward of unused allowances. - The fact that an employer's pension contributions utilise the annual allowance. Ifa seperate section ofa question, then the marks available should be a good indication as to the complexity of a raquiremant. KAPLAN PUBLISHING 285 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 337 337 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {FA2022) Marks ; la) Employment income Salary a5 Sonuses 10 Mileage Pension contribastons — #0 banctit 15. Os Professional mepecription Got membership os as Property income Renta: income Worhing madiine cost deducted tio deduction For dedwwasher as 10 16 Oller expenses furnished room Accrved income a5 10 20 Quoahtying Interest 19 Dersosal slowonte fully abated os 1.0 {>} Restriction to £4k im 2022/23 18 Amounncs bff and uced In 2002/2% 1s Corry fareard of £4k from 2021/27 as 3G | Total 107 | 15.0 Ary TONIE (ADAPTED) | Key answer tips | Part (a} tests the residence rules for individuals. The tax rates and eliowances show the | required number of ties based on the time spent in the UK. You.could have passed this part | of the Question using this information. _ Part (b) asks for four factors that indicate Tonie will b¢ treated as employed, rather than self | employed. The requirement asks you to ‘ist’ four factors so don’t-waste time providing _ unnecessary explanations. | Part (c) requires the caloulation of taxable income. This is a standard requirement and you shoud be familiar with the various income and expenses included in this calculation, (a) Tonle was previously resident arid was in the UK between 46 and 90 days. She therefore needed three UK ties or more to be treated 35 UK resident, Tonie onty had two UK ties, which were beng in the UK for more Chan 90 ays curing the sreviaus tex year, and spending more time in the UK than in any other country during 2021/22. 290 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 338 338 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 {b} 9 The contract was for a relatively long period of time, Tonia aid not take any financial risk. Tonite only worked for Droid plc. Tonic was recuired to do the work personally, Droid picexercised contro! over Tonie vie the weekly meetings and instructions {c} Tonic — Taxable income 2022/23 E Emptayment income Salary {£6,200 x 12) 74,400 Mileage allowance (2,300 at 15p (60p ~ 45p)) 348 Leasing costs (E180 « 12) Property Income (Wy (2,160) 9,670 Savings income {£100,000 at 3% » 5/12) Premiuen bond prize L250 0 interest fram savings certificate 0 83,505 Personal allowance {12,570} Taxable income 70,935 — Tutorial mote Under the accrued income scheme, Torie must include the accrued interest from the gilts as savings income for 2022/23, even though she hes not received any octual interest, Working ~ Property income Rent received Mortgage interest Reptacement furniture relief Washing machine KAPLAN E 10,080 0 (380) Dishwasher Other expenses 0 {2,110} Furnished room {£3,580 — £7,500) 8,590 1,080 Property income 9,670 PUBLISHING 291 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 339 339 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) 3 Tutorial note 1 No relief is given for the mortgage interest in the pronerty Income working. Relief will be given at the bottom af the income tax comcutation. (2 No relief is given for thor part of the cast of the wosher-dryer that represents an improvement over the original washing machine. Rellef is trerefore restricted to the costof a similer washing oxchine: 3 No relief is available for the cost of the dishwasher because this is-an initial cost rather than the cost of a reolocement. a Claiming renta-roam relief in respect of the furnished room is more beneficial than the normal basis of assessment (£8, 58D — £870 = £7,710). ACCA marking scheme i Morks la) [d} fe} } Recoonce 2.0 Factors 20 Sabary 05 Niloage allowance 1.0 Lessing costs Savirgs income 19 10 Fremium bond Interest fram savings certificate 10 10 Rent recewed Mortgage interest Washing machire Ostrwasher Other expamses Room PA 10 10 10 oS o.5 1.0 oS 11.0 | Total | 292 isc am KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 340 340 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATICNAL INSURANCE QUESTIONS: SECTION 6 108 KAT (ADAPTED} re a Walk in the footsteps of a tep tutor (es) Property purchased personally | Key answer tips in this question you are required to work out the tax savings thet result from holding property either directly as an individual or through @ company. The corporation tax is provided for you and you must ensure you do not repeat calcubtions that have already been performed. The key to passing this question is to ensure you set out two separate calculations, one with the dividends being the income that will be taxed via the company and the other with the property income directly taxed via a personal holding of the property. When working out the property income for the option where the property is owned personally try and remember that none of the mortgage expense Is allowable nm the property incame calculation, Relief will be given at the basic rate of income tax at the battam of the income tax calculation. Don’t ignore part (b) as there is an easy mark for acknowledging that the annual exempt amountis only available to individuals. Property purchased personally Employment income Property income (working) € 60,550 26,600 87,250 Personal allowance Taxabie income (12,570) 74,680 Income tax £ 37,700 * 20% (Non-savings) 7,540 36,980 x 40% (Non-savings) 14,792 74,680 KAPLAN interest relief (£12,000 « 20%) 22,332 (2,400) income tax liability 19,932 PUBLISHING 293 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 341 341 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK>: TAXATION (FA2022) Working - Property income Rent receivabte (£2,600 « 12} £ 31,200 Mortgage interest 0 Other expenses (4,600) Property income 26,600 Property purchased via a limited company £ Employment income Dividend income Personal allowance Taxable income 60,650 6,000 66,650 (12,570) 54,080 income tax E 37,700 x 20% {Nor-savings} 7540 10,380 * 40% {Non-savings} 4,152 2,000 « 0% (Dividends) 4,000 = 33.75% (Dividends) 9 1,350 54,080 Income tax lability 13,042 Condusion If Kat purchases the property via a limited company, then the overall tax saving will be’ £4,116 compared to purchasing the property personally: £ Purchased personally 19,932 Purchased via a limited company {£2,774 + £13,042) (15,815) Tax saving 294 4115 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 342 342 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 tsi Tutorial mote The comparison ignores the fact that eat all of the profits are withdrawn under the company purchase option. However, profits might tyoicaly be retained within a company to repoy the mortgage borrowing or to fund 2 future property purchase. (b}) The ennuel exempt amount will not be available if the gain occurs within a limited company Tutorial mote A limited company would not benefit from an indexation allawance os the property would be purchased after December 2027. ACCA marking scheme Marts tel Kat - Income tax Emp iyinem incom Persona! atowance Taxnt I os os os Tax at 40% os farerest retet Mat ~ Property inccene 19 Bent recebed os lacerest 16 Other expenses os Comporry— income tax Dividend income Empbyment income oS oS Porsonal ioweerce oS Tox at 40% Tax at OX os os tex aT 335% os Tax at 20%. Tax saving os os 95 (b) AEA avelsble to individuals Total ! KAPLAN 1.0 10.0 AJ PUBLISHING 295 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 343 343 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Examiner's report This question involved an individual who was planning to purchase ‘a residential freehold property which was going to be let out. She was unsure whether to purchase the property personally or via a mited company. The limited company would be incorparated for the sole purpose of purchasing and letting out the property, and Kat would hold ail of the shares in the company. The company’s corporation tax lisbility was provided in the question. Part (a) for 9 marks required candidates to datermine if there would be an overall saving of tax If Kat purchased the property via 3 limited company rather than purchasing it personally, Those candidates who made sure that they understood the scenario and worked carefully theough each cakulation had no difficuity answering this section. As warned in previous feports, where s tax figure is given for one of the scenarios (in this case, the corporation tax figure), candidates should never attempt to recaloulate the figure for themselves, All this does is use up valuable time. As regards the conclusion, this. should have just been 2 calculation of the tax difference between the two scenarios. There was no need for a detailed explanation. Where computations are required for two different scenarios, candidates shoul dearly indicate which scenario is being answered. This is particularly important where some of the same information is used in both scenarios. in this case employment income and the persorial allowance were common across both scenarios. Some candidates attempted to answer this question with just the one computation; impossible given that property income formed part of the first computation, with dividend Income Included In the second. tt'should have been quite clear from the information provided that full computations were necessary for both scenarios. Those candidates who calculated the tax liability for a personal purchase and then attempted to adjust the figures for a corporate purchase invariably ended up with a very confused answer. The personal purchase required candidates to apply the restriction whereby relief for 100% of property income finance costs is restricted to the besic rate. Working through past examination questions will help candidates farniliarise themselves with the best approach to be taken when answering questions which examine more than one tax, Also, it is important that candidates appreciate the interactions that can arise in such questions, and an article has been published covering many of the scenarios which could be examined. Part (b) for 1 mark required an explanation of one way in which the caiculation ofa future taxable gain on a property disposal made by the limited company would differ from the calculation ofa taxable gain on a disposal made personality by Kat. Although there were many good answers to this section, some candidates discussed the finance costs restriction when this has nothing to do with taxable gains. All that was required was a brief mention (not a detailed answer) of the annual exempt amount. 296 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 344 344 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATICNAL INSURANCE QUESTIONS: SECTION 6 INCOME TAX BASICS AND INCOME FROM SELF-EMPLOYMENT 108 CAROL COURIER (ADAPTED) Key answer tips A straightforward purely computational question dealing with the income tax and national insurance consequences of being employed and self-employed. Part {c) requires a comparison of the net disposable income arising from the two options. Carol’s Income tax llability~ continues to be employed Salary Less: Pension contributions (£44,000 x 5%) Employment income Less: PA Taxable income income tax liability (£29,230 * 20%) 44,000 (2,200| 41,800 (22,570 73,230 3; 3 (a) Gass 1 NICs — Employce’s primary contributions {£44,000 — £12,570} * 23.25% {b) 4,164 Carol's income tax liability ~ accepts self-employed contract income (£47,000 + £13,000) Less: Expenses {£4,400 + £2,300) Trading income Less; PA Taxable income Income tax liability (£40,230 » 2094) (Working) Class 4 NICs {£50,270 - £12,570) x 10.25% {£52,800 - ES0,270) x 3.25% Glass 2 NICs (£3.15 for 52 weeks) KAPLAN PUBLISHING £164 257 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 345 345 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {FA2022) Working: Extension of the basic rate band £ 37,700 Basic rate bart Plus: Gross pension contributions 3,000 Extended basic rate band 40,700 Aj of Caral’s taxable incame falls nto this extended basic rate band and is theretore taxed at 20%. {c} Benefit of accepting self-employed contract Salary Trading income Pension contributions paid (Note) NiC™= Classes I and 4 Employed Sel! employed £ £ 0 (2,200) (4,154) 9 52,800 {2,400} (3,946) 44,000 0 (164) Income tax (5346) (8,046) Net disposable income 31,70) 38,244 NIC ~ Class 2 itis therefore beneficial for Carol to accept the offer to provide delivery services on a self-amaloyed basis as her net income wil increase by £6,454 (£38,244 ~ €31,799), Ea Tutarial note | Carol will pay personal pension contributions net of basic rate tax, If self-employed she will | therefore poy £2,400 (£3,000x 80%}. Tutor’s top tips When calculating the net disposable incame think just (a terms of cosh and Identify al! cash | caming in.and af cash payments going cut. | Cash payments obviously include the tax Wobilities but also include other expenses such as _ pension contributions. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 346 346 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 110 TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 IDRIS WILLIAMS ‘a2 Woik in the footsteps of a top tutor Key answer tips This question has been written to test the rules on the cash basis as well as the choice of accounting date. Students should be familiar with the factors that influence the choice of accounting date arid the advantages and disadvantages of choosing an accounting date early or late in the tax year. The cash basis rules are examinabie to a limited extent. This question tests all the rules that could be examined. The highlighted words in the written sections are key phrases that markers are looking for, Tutor’s top tips There are four marks available for part fa}, therefore four clear points should be made, {2} Advantages of a5 April accounting date . If idris chooses to prepare his accounts to 5 April, the application of the basts period rules will be simplified. . Idris will not have any overlap profits on the commencement of trade. If he prepares his accounts to 30 June, nine months of overlap profits will arse and these would not be reliewed until the cessation of trading. Advantages of 4 30 June accounting date . Ifidris prepares his accountsto 30 June the interval between carning profits and paying the related tax liability will be $ months longer than with an accounting date of S Apn {(b} ° An accounting date of 30 June would make it easier to implement tax planning measures os there is a longer period over which to plan, 2 Tax adjusted trading profit - accruals basis Tutor’s top tips This question does not specifically request that you start with the net profit figure and adjust for any disallowable items, but this is the mast abvious approach to take. Always shaw your workings if the figure pou are adjusting for is net clear fram the question. When using the normol! accrual basis no adjustment should be mode for ony revenue not received ot purchases not actually paid for duriag the year. KAPLAN PUBLISHING 289 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 347 347 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) £ 20,175 Net profit Food, utilities, etc. (personal use) Depreciation 4.500 1.250 Car expenses (£9,340 x 7,000/20,000) 3,269 Capital allowances (W} £ 4,553 29,194 (4,553) Tax adjusted trading profit 4,553 —- 24.641 ia Tutorial note The usual presentation of an adjustment of profits is produced above, However, an akernative | Methed of calculating the same taxable trading profit figure is to reproduce the arcaunts just | deducting the expenses. thet are allowabie, as opposed to adding beck those that ore not | Mewoble to the net profit, This ulternative presentation is given befow as it provides a mare | direct comparison of the difference in the treetment when the cash basis is used, £ £ | Revenue | Food, utilities and other household goods (£17,660 — £4,500) 49,920 (13,160) 36,750 | Depreciatian | Cor expenses {£9,340 « 13,000/20,000) | Other expenses | Capital atiowances (WW) 0 6,072 L435 4553 (12,109) 24,642 300 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 348 348 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Working: Capital allowances £ Main pool £ Private use car E Additions (ne ALA) Car {1 - 50g/kmm) Additions (with AIA) Furniture ALA Allowances £ 9,000 3,800 (3,500) 3,500 6 WDA (183%) (Note) TWD off (1,620) O *65% 1,053 7,330 Tota! #lowances 4,553 i Tutorfal note Capitat allowances on cor purchases are calculoted based an the CO; emissions. As the cor purchased in this question has COz emissions of between 7 — 50 grams per kevometre, it fs eligible for a WDA ot 18%. The WDA then needs to be adjusted for the private use by Idris, as only the business.use proportion of the afiowonce can be claimed. The business mileoge ts 13,000 out of 20,000 miles [i.2. 653%). 2 Cash basis Idris is entitled to use the cash boss as his total cash receipts ere not greater then £150,000 for the year. Tutor’s top tips When operating the cash basis odjustments need to be made for any revenue net received or purchases not actually puid for during the year (i.e. receivultes and payables). The examining team hes stated that where the cosh basis Is used you should assume that fiat rote expenses are claimed for cor expenses and privote use of business premises. The cor expenses deduction & coleulated using the HIARC approved mileage allowances. The private use of business promises flot rote adjustment covers the private use of food, utilitics ond other household goods and services. Capitaf purchases ore deductible in full in the yeor of purchase; however, no deauction is ovoilable for the purchase ofa cor as this is covered by the approved mileage allowance, Note that the cash bosis revenue limit is given in the Tax Rates and Allowances provided in the examination, KAPLAN PUBLISHING 301 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 349 349 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) £ £ Revenue (£49,910— £10,275) ‘39,635 Less: Food, utilities, etc (£17,660 * 95%) (16,777) 22,858 Pius; Flat rate private uce adjustment Less; Depreciation 4,200 0 Capital expenditure 3,300 Car expenses (W) 5,250 Other expenses (£1,485 - £400} 1,085 —_—_—- Tax adjusted trading profit (9,835) 17,723 Working: Car expenses idris is entitied to claim a deduction for his business mileage of 13,000 miles at the appravec mileage rates. E 10,090 miles at 45p 4,500 3,000 miles at 25p 750 5,250 More beneficial basis Using the cash basis will result in Idris being taxed on £7,418 {£24,641 —£17,223) less then under the accruals basis. lil ETHEL ef Walk in the footsteps of o top tutor _ Key answer tips Part {a} tests cash accounting and flat-rate basis rules. . The highlighted words are key phrases that markers are looking for. Part (b) has a very straightforward computation of taxable trading profit using the accruals 302 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 350 350 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATICNAL INSURANCE QUESTIONS: SECTION 6 Tutor’s top tips Yau do not hove to answer this question in the arder set. Provided you clearly indicate which port you are onswering. you can answerin any order. Hence you might prefer fo start with port (b) on the accruals basis os this moy be more familior. However, do take care when attempting a question out of order, as sometimes the answer to port (a) ts required in port (b), and so on, (2) Ethel Brown - Calculation of tax adjusted trading profit using cash basis with flat rate expense adjustments £ Revenue (£74,500 ~ £10,000) [Note 1} Less: Food, utitities, etc. Plus: Flat rate private use adjustment {Note 2} £ 64,500 {25,000} 7,800 (£7,200} Less: Mileage (Not 3} Equipment (Note 4) Tax adjusted trading profit {4,750} 0 42,550 Notes: 1 income © 2 The income of £10,000 outstanding st the yeer-erd & excluded when calculating the profit using the cash Sasis, When using cash accounting, Income is arly included if it has been received during the period Business premises used partly for private purposes * The total payments of £25.000 can be deducted from the trading orofit but the flat rate private use adjustment of £7,800 must be added to the trading profit for tax purposes. ° A net deduction from trading profits of £17,200 can therefore be claimed for tax purposes. 3 Car used for private and business purposes ° Thecash payments in cespect of the purchase and nunning costs of the car totalling £17,000 [£14,000 + £3,000) are not Geductible from the trading profit and capital allowances are not available. KAPLAN PUBLISHING 303 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 351 351 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) ° Instead 3 tax deduction for the car is allowed ucing the approved mileage allowances for the business mileage as follows: E 4 First 10,000 miles at 4Sp/mie 1,000 mies at 25p/miie 4,500 250 Allowable deduction 4,750 Kitchen equipment . A tax deduction can be claimed frorn the tradirg protits for the full cost of the kitchen equipment when the Invoice ts paid. * No tax deduction is therefore allowed In the accounts for the year to 5 April 2023 but Ethel will obtain a tax deduction of £350 from trading profits in the following year to 5 April 2024. ia Tutorial note iz The question states that Ethel opts to use the cash basis and the flat rote expense odjustments. Note that the examining team have stated that whilst the use of flat rate expenses Is optional it should be assumed in any question involving the cash basis thot flat rote expenses are claimed. Where o business premises is used portly for private purposes (e.g. a bed ond breakfost or smal care home), a private use adjustment must be made for tax purposes if the full cost of food, utilities and other household goods have been included in the accounts. The HMRC flat rate private use adjustments are based on the number af occupants and will be provided as part of the question in the examinatian, Any informetion regarding octuo!l private exoenses is irrefevont. The flat rate expense adjustment In respect of cors 5 bosed mileage allowances. These are the some rates that ore used benefit/atowable deguction where employees use their purposes. The rates are given ier the tox tobles provided in the on the HMAC approved to.colculote the taxable own cars for business excmination. Under the cash basis o 100% trading deduction is given far the ocquis!tion cost of tems of piont and machinery (other than cars} rother than copital allowances. 304 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 352 352 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL {b} INSURANCE QUESTIONS: SECTION 6 Ethel Brown = Calculation of tax adjusted trading profit using accruals basis E Revenue E 74,500 Less: Food, utitities, etc, (E25,000 x 65%) (16,250) 58,250 Less: Car running costs {£3,000 =» 60%) 1, 800. Equipment Capital sllowances |W) G L862 —= Tax adjusted trading prafit (3,662) 54,588 Working: Capital allowances £ Main = Private pool E use car £ Altowances £ Additions [na AbA} Car [1-50g/km} Additions (with ALA} Equipment AIA 14,000 350 (350) 350 u WDA (18%) {Note} TWD off (2,520) Oo «60% 1,512 11,480 Totat allowances 1,862 Tutorial note Capital allowances on cor purchases ore calculoted bosed an the CO; emissions. As the cor purchased in this question hos CO; emissions of between 1 — 50 groms per kitometre, it is eligible for a WDA at 18%. The WDA ther needs to be adjusted for the private use by Fthel as only the business use proportion of the allowance can be cloimed. KAPLAN PUBLISHING 308 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 353 353 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> 112 TAXATION ({FA26022) ROBINETTE | Key answer tips | This question covers the situation where an individual is employed, self-employed and also | earns property income. | | | | Part (a) should have provided easy marks for the calculation of employment income as it Contained core areas, The self-employment calculations were not too complicated as long as you were familar with the basis period rules for both opening and closing years. The property moome calculation was also straightforward, providing you remembered to use the accruals concept. Part |b} was straightforward provided the self-assessment rules had been learnt and apolied _ to the information given. {a) Taxable income 2022/23 £ Employment income Salary (20,500 x 6) Living sccommodsatior — Rent paid (690 x 6) Running costs Workplace nursery Mileage allowance (5,200 at 105 (45p — 35p}} 1,440 o (520) 68,650 75,350 Wi 12,800 =W2 Property income (working 3) 155,810 6.288 WS Personal allowance 162,098 (co) Taxable income 162,098 Trading profit— Old business (working 1) — New business (working 2] 306 63,600 4,140 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 354 354 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 ig Tutorial note 1 The provision of a workploce nursery is an exempt benefit regardless of the cast to the employer. 2 No personal allowance is available because £162,098 exceeds £125,140. Robinctte’s adjusted net income of Working 1 — Trading profit (old business) £ 106,900 14-morth period ended 30 June 2022 Balancing alowance (15,300 + 2,600 - 1,750 — 7,300} (8,850) 98,050 (22,700) Relief for averlap profits 75,3390 Working 2 ~ Trading profit (new business) £ 55,700 (26,200) Five-month period ended 30 June 2023 Capital allowances (26,200 = 100%) 25,500 Assessed in 2022/23 23,500 x 2/5 = 77,800 Working 3 - Property income Insurance [624 x 6/12} £ 6,600 (322) Property income 6,288 Ret receivable (1,100 x 6} (b) fi) 1 HMAC intend to carry out a compliance check into Robinette’s self- assessment tax return for 2022/23, then they will have to notify her by 14 August 2024 (12 months after they received her tax return), lf Rebinette is confident that her return is complete and accurate, then the likely reason for HMRC carrying outa compliance check is because the return has Deen selected on a random basis {li) Rebinette was in business during 2022/23, so all of her records (both business and non-business) must be retsined until five years after 31 January following the tax year, which ix 31 January 2029 KAPLAN PUBLISHING 307 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 355 355 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK>: TAXATION (FA2022) ACCA marking schema Marks {a) Satary os Uving scoommedation Running costs 05 o5 Nursery 1.0 KWeage alicerarce 16 Old business 34 momh period erded 30 kine AZZ Balancing allowance Overtap profits 05 20 10 Now busnes Period exdod 20 June 2023 1.0 Capital alowances Acsarsad tn 2022/23 1.0 oS Property 20 PA oS 120 Ib) 0) Gi} = Qreck Records Total no 1.0 15.0 Examiner's report Part (a) for 12 marks required candidates to calculate Robinette’s taxable income forthe tax year 2022/23. This section was generally very well answered. However, candidates should: always read the question carefully to ensure they understand what needs to be done before starting their answers. Where only taxable income is required, es in this part, cendidates should never spend valuable time in also calculating the income tax liability. However, taxable income is etter deducting the personal allowance, and this should have been shown by the use of zero (0) [Robinette’s level of Income meant that the. personal allowance was reduced to nél). Given that the question involved various changes in Robinette’s sources of income, Candidates needed to be very careful in regard to time-apportionment and basis periods. Common problems inichided: * — Time-apportioning profits for the period of cessation . Not appreciating that WDAS, the AIA and FYAs are not given for the period of cessation * Time-apportioning the trading profits on commencement before capital sllowances have been deducted. With this type of question, candidates shouid think carefully about which workings can be included as one-line calculations within the main computation, and which need their own separate working, For example, the mileage allowance working of 5,200 at 10p (45p— 35p) = £520 should have been Inchuded within the main computation. 308 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 356 356 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Part (b) for 3 marks required candidates to 1 state the period curing which HM Revenue and Customs (HMRC} would have to natify Robinette if they intended to ca’ry Out a compiance check in respect of her self-assessment tax return for the tax year 2022/23, and the likely reason why sucha check would be made, and 2 to advise Robinette as to how long ste must retain the records used in preparing her self-assessment tax return for the tax year 2022/23. Although there were a number of good answers, in general this section wes not so well answered as part (a). Candidates should note; . The fact that the requirement was for a total of just three marks should have been a good indication that only a few brief points needed to be made, and nota much longer Gscussion. . Where a question asks for dates, then these dates need to be precise — including the year relevant to the question, . Answers should always be related to the information provided, The question made it clear that Robinette’s self-assessment tax return was complete and accurate, so the likely reason for HMRC carrying aut 8 compliance check was because her tax retum was selected on a random basis. GEORGE (ADAPTED) ree] Walk in the footsteps of a top tutor Key answer tips A classic examination question on self-employed versus employed which was not dificult, but presented in a scanaria requiring the application of knowledge to the particular situation given. This is a newer style of question for students, comparing the income tax and NIC liabilities on the same amount of income for both an employee anda sole tracer. Thisis useful preparation for these planning to move on to ATX, Tutor’s top tips it is important to learn the rules for determining whether an individual Is setf-empioyed. However, it fs not enough here to simply state those rules; instead they must be applied to the situation given, The question requirement specifically asks anly for those factors that indicate employment rother than self-employment. The answer must therefore focus on those factors, not any factors you can remember and not those that would clearly suggest self-employment rather than employment. Even without detailed knowledge of the rules here, comman sense suggestions shauid enable Students to pitk up some marks. The answer below gives six factors for tutorial purposes but you were only required to provide four in your answer. KAPLAN PUBLISHING 309 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 357 357 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (a) (FA2022) Factors indicating employment . The contract ts for 3 relatively long period of time ° George is required to do the work personally “ Xpee pic exercises. control over George via the weekly meetings and Instructions . George will not incur any Significant expenses in resect of the contract 4 George will onty be working for Xpee ple 2 Gearge is not taking any significant financial risk. Tutor’s top tips Part (b} invalves straightforward income tax and NIC coiculations, which you shauld be able to score well on, regardless of your answer te part {a}. | Don't miss the opportunity to gain these easy marks by being put off by the first port of the | question, or by running out of time. {b} Income tax liability E Income Capital allowances {£3,600 « 100% AIA) Tracing profit Personal alowance Taxable income Income 41,000 (3,600) 37,400 {12,570} 24,830 tax £ 24,830 x 20% 4,966 National insurance contributions & Class 2 NICs (£3.15 52} 164 Class 4 NICs (€37,403 - £12,570) = 10.25% 310 2,545 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 358 358 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS {ch} TO PRACTICE 2 INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 If George ts treated as employed in respect of his contract with Xpee ple, then the company will be requared ta deduct tax under PAYE every time that George ¢ paid during 2022/23. if treated as self-employed, George’s Income tax liability for 2022/23 would not be payable until 31 January 2024. 2 if George ts treated as employed in respect of his contract with Xpee plc, then his class 1 national insurance contributions for 2022/23 will be: Class 1 employee NIC (£41,000 =— £12,570) 13.25% £3,767 The additional amount of national Insurance contributions which he will suffer ts therefore £1,058 (£3,767 ~ £164 ~ £2,545), Tutorial note Far income tax purposes, capita! allowances will reduce employment income in the same way that they are deducted in calculating the trading profit. However, there is no deduction for capitol oNowances when ft comes to cafculating closs 1 nationa! insurance contributions. Examiner's report Part (a) required four factors which were indicators of the taxpayer being treated as an employee in relation to thelr contract rather than as self-employed, Most candidates missed the fact that the taxpayer would not incur any significant expenses in respect of the contract and would not be taking any significant financial risk. Many candidates incorrectly gave the payment of tax under PAYE for the previous year as an indicator, Part (6) required 3 calculation of the taxpayer's Income tax Sabiity and national insurance contributions if they were treated as self-ernployed in respect of the one-year contract. This was well answered, but many candidates produced extremely long answers for what should have been a simole set of workings. For example, the capital allowance was simply a 100% annual investment allawance on the purchase of a new asset and cid not require 3 detailed capital allowances computation. Part (c} required 1 an explanation why the taxpeyer’s income tax llebility would be payable earlier if they were treated as being an employee instead of selfemployed, and 2 a calculation of the additional amount of national insurance contritutions which would be suffered. As regards the payment aspect, most candidates just referred to PAYE without any further relevant detail. Very few appreciated that the due date under the self-employed basis was simply 31 January following the tax year — payments on acceunt not being required because the previous year’s tax liability was cofected under PAYE. KAPLAN PUBLISHING 311 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 359 359 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) ACCA marking scheme Marks [aj The contract is tor 3 long period of time as Required te do the work personally Kpee ekereisas contra ever George os us George won't nove significant expenses Us Only working for Xpee Os No financial risk as Maaimun fh} 20 Treated as sell employed Contract fee Capital allowances Personal allowance Os 10 as inceme tax Os Thats 2 os Class 4 19 ag fe} 1 z ferpioyed- PAVE Setf. employed 31 January 2024 ia Lo Cass] espioyes 13 Additional NIC as ao Total 10.0 - 114 | FLEUR t | | Key answer tips | This sectian C question is a higher skills question that tests some basic aspects of income tax, | NIC and corporation tax — but Ina more advanced way, | Here you are given a set of figures which have been calculated for. one prot level, and then asked to recalculste Chem if the profit evel changes. The figures you are given are correct, as | don’t waste time recalculating therm. The notes to the question sey you need to do full income tax computations, so make sure | you do. This nete seems to suggest that you may not need to do full caloulations for some of _ the other figures, So think about if there ere ary shorteuts you could use to save time. 312 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 360 360 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 Remain self-employed Income tax (working) Class 2 NICS [unchanged} Class 4 NICs (£5,480 + [£35,000 at 3.25%)} Total £ 46,460 164 6,618 53,242 Working — income tax Trading profit Personal allowance Taxable incorne 135,000 0 135,000 income tax E 37,700 at 20% 37,300 at 40% 7,540 38,920 135,000 Income tax liability 46,460 et Tutorial mote Adjusted net income exceeds £125,140 so there will be no personal aWowatice available. Incorporation Income tax (working 1) Employee class 1 NICs (unchanged) KAPLAN Erriployer’s class 1 NICs (unchanged) Corporation tax (£11,605 + {£35,000 at 19%}) 25,243 2,972 3,858 18,259 Tatal 50,372 PUBLISHING 313 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 361 361 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Working 1 ~Incorne tax é Directors remuneration Dividend income 35,000 70,060 105,000 Personal allowance (working 2) Taxable income 410,070) $4,930 income lax £ 24,930 (£35,000 — £10,070) at 20% £ 4,986 2,000 at 0% 10,770 {£37,700 - £24,930 — £2,000) at 8.75% 57,230 (£70,000 ~ £2,000 — £10,770) at 33.75% D 342 19,335 $4,939 income tax lizbiiity 25,243 Working 2 ~ Personal allowance E Personal allowance 12,570 Reduction ((£105,000— £100,000)/2) (2,500) Reduced aersonal allowance 10,070 a | Tutorial note i Adjusted net income exceeds £100,000 so the personal olfowonce vail netd to be restricted, 2 The first £2,000 of dividend lacarme is taxed at 0% Conclusion Given the Increased forecast trading profit of £435,000, incorporating her business wil now resuk in an overall tax and NIC saving of £2,870 (£53,242 — £50,372} for Fleur- 314 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 362 362 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Marking scheme ircome tae Trace facome os Income tax linbillity Chess 2 NICs Class 4 NICs BREE Persanal ello ware Oniderd Income Personal Miowarke income Tax Sabiity x Empioyee NICS Corporation Tax Candusion lElsveensee rKkome tax Examiner's report The iG4nark higher skills question involved Fleur, who was self-employed. Based on Fleur’s current trading profit of £100,000, tax and national insurance contributions (NICs} figures were provided for the year ending 5 April 2023 giving a comparison of her remaining self- employed and against the business being incorporated, The condusion being that there was no tax advantage to incorporating Fleur's business as the tax and NIC costs were higher. However, Fleur had just signed a contract with a new customer and her revised forecast trading profit for the year ending 5 April 2023 was going to increase fy £35,000 to £135,000. As is typical for the higher skills question, It is important to read the question and requirements carefully, The recommendation was that full computations were only required for the two income taxcomputations, with all other worldngs being carried out at the margin. Akhough candidates were given marks if a full computation approach was taken throughout, such an approach invariably takes longer, Provided candidates followed the guidance given, thinking carefully how to set out their answers, the question was generally quite well answered. The class 2 and ¢lass 1 NIC figures did not change with the new profit level, and candidates that did not appreciate this not only wasted time, but often failed to pick up these easy marks. For the self-employed alternative, net income was £135,000. Candidates should have therefore appreciated that no personal allowance was available without the need to perform a calculation, Conversely, when it came to the incorporation slternstive, the personal allowance was sometimes not given at all despite net income being just £105,000. KAPLAN PUBLISHING 315 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 363 363 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 YX-UK>: TAXATION (FA2022) | The incorporation aternative often caused more problems. One issue was the inclusion of the trading profit within the income tax computation. Even when the correct incame was | included, some candidates did not apply the dividend income tax rates to the dividend income correctly, many candidates not appreciating that the €2,000 dwidend nil rate band counts towards the £37,700 busic rate band, | After deducting the personal allowance, the nan-dividend income was £24,930. Therefore, . the income tax calculation was: ° £24,930 at 20%, then | . £2,000 at 0% [the dividend nil rate band], then . £10,770 (€37, 700 — £24,930 — £2,000) at 875% (the remainder of the basic rate band), and finally ° £57,230 (£70,000 — £2,000 — £10,770) ot 33.75% [the batance of the dividend inmome of £70,000) itis not good practice to have anything other than the most basic of workings within 2 cell, It | very difficult to follow the answers of those candidates who did this entire four-ine income | tax calculation within one cell. Those candidates that attempted to recalculate | provided, wasted a considerable amount of time. all of the tax and NIC figures already | Candidates that gave some thought to their layout would have found themselves in a position | to gain the one mark availabte for the conclusion with fittle further work. 115 PAUL we Walk in the footsteps of o top tutor Key answer tips | This question is a typical ‘higher skills’ question and may initially appear quite daunting as it requires you to consider a number of different taxes. in this question you are required to work out the whether or not there would be 3 tax saving -as a tosult of Paul setting up as a Sole trader rather thana company. | Treat each business as being set up separately and work out all of the relevant taxes that | would be due for each. The key to passing this question is to ensure you set out two Separate calculations, one with the tax due operating as a company and the other as a sole trade | Then use the information provided in the scenario to work out the tax and NICs that is due under both alternatives, A good knowledge of all the taxes that would be due under both _ options is vital to be able to score well in this question. 316 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 364 364 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Business run 2¢ a limited company 1 Palu Ltc’s corporation tax lability for the year ended 5 April 2023 will be: £ Trading profit Director's remuneration Taxable total profits Corporation tax (167,000 at 19%) 175,000 (8,000) 167,000 31,730 <2 <, Tutorial note Equivalent marks wil! be awarded if the carporetion tax iigbility is alternatively calculated as £175,000 — £8,000 - £135,270 = £31,730. 2Z Paul's income tax liability for 2022/23 will be: Olrector’s remuneration Dividend income £ 8,050 135,270 143,270 Less: Personal allawance Taxable income 0 143,270 a Tutorial note Pou! has total income over £125,140 which means fe yeill not be entitled to any personal atowonce. There was no need to show working as he is clearly over this limit. KAPLAN PUBLISHING 317 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 365 365 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Income tax” £ 6,000 2,000 27,700 205,570 at 20% at 0% (37,700 - 8,000 — 2,000} at 8.75% (135,270 —2,000 - 27,700) at 33.75% 1,600 0 2,A24 35,630 143,270 Income tax liability 3 39,654 There will be no class 1 employee or ernployer NICs because the eamings of £8,000 ere below the NIC lower thresholds. os Tutorial note Poul is receiving the mojority of bis income from the company as aividends. There wil always | be the £2,000 dividend nil rote band no matter the amount of taxable income. | Remember the limit far which NICs ts poyable on earnings for employees fs £12,570 and for employers is £9,100. Business run as a sole trader 1 Paul's income tax liability for 2022/23 wit be: £ Trading profit Personal alowance Taxable income 175,000 0 175,000 Income tax £ 37,700 at 20% 7,540 112,300 at 40% 44,920 25,000 at 45% 11,250 175,000 Income tax liability 2 318 53,720 Class 2 national insurance contbutions (NICs) for 2022/23 wil be E164 (52 x £3.15). KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 366 366 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 3 TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Class 4 Nis for 2022/23 will be: £ E 37,700 (56,270— £2,570} at 10.259 124,730 (175,000 — 50,270} at 3.25% 3,864 4,054 Oass 4 NICs 7,918 Tutorial note if Paul were to operate as a sole trader he will not hove Gass 1 NICs but instead will have Class 2 & 4 NICs. Closs 2's a fixed rote of £3.15 per week. Class4 \s bosed on the trader's profits and is after the deduction of the lower profits limit of £12,570. Conclusion If Paul runs his business asa sole trader, then overall tax and NIC will be £408 more compared to running the business asa limited company: £ Limited company (£31,730 + £39,654) 71,384 Sole trader (£63,710 + £164 4 £7,918) (71,792) Tax increase 408 Examiner's report As is quite typical for the 10-mark question, the question required 2 decision as to whether an indidual should operate as 3 sole trader or & company. In the case of Paul, however, he was currently trading via @ cornpany, Palu Utd, and was considering whether it would be beneficial to cease trading via Patu itd on 5 April 2022, and instead run his business fron 6 April 2022 onwards 2s a sole trader. The question effectively provided the amount of corporation tax payable by Palu Ltd, since it stated that all profits (efter allowing for corporation tax) would be extracted and gave figures for director's remuneration and dividends. Candidates were given clear guidance of what workings were required, and those following this guidance would have had little difficulty in achieving @ pass for this question. Thk guidance also made it clear that full workings were required throughout, with the working at the margin approach not relevant in this question. Corporation tax: This aspect was generally very well answered provided candidates did not deduct dividends. Either a full computation or (the previously mentioned) srorteut approach were acceptable. Both approaches are shown in the suggested sotutian. KAPLAN PUBLISHING 319 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 367 367 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (FA2022) income tax flability under the corporate option: Ths aspect wos also generally well answered, Gwen the level of income (£143,270), the personal allawance was obviously not available so just a zero (0) should have been shown. There was no need to justify this with a supporting calculation, The fact that the £2,000 dividend nil rate band counts towards the basic rate threshold was often overisoked in the income tax calculation. NICs under the corporate option; Director’s remuneration was just £8,000, so there were.no class 1 NiCs. Candidates wasted 2 lot of time on irrelevant calculations if they included dividend income or used Palu Ltd's trading profit. This is why question practice is so important because such Basic mistakes only tend to be made the once. Income tax liability under the sole trader option: Another generally well answered aspect, Again, it should have bean obvious with a trading profit of £275,000 thar the personal allowance was not available. NICs under the sole trader option; There were many perfect answers to this section, although condidates should be careful with their layout, MR often took some hunting around the answer spreadsheet to find the class 2 NIC working. One other problem sometimes encountered when marking this question was that candidates did not always make It dear which aspect was being answered, especially when kt came to the two income tax computations. Headings are essential, and the best approach is to answer a question in line with the guidance given. The model answer shows the preferred layout, with none of the calculations requiring any separate workings. Candidates are advised to makes sure thelr workings are clear whether shown on the face of the spreadshect or within cells. Only the most basic of calculations should be done within a cell and care should be taken to ensure the correct details are recorded in the correct way. For example, the class 4 NIC working {50,270— 12,570) x 10.25% = £3,864 tf Induded within a cell, It is very easy to forget the brackets so that the answer becomes: $0,270 — 12,570 = 10.25% = £46,982 Some candidates included entire income tax or NIC workings within cells. This is not good practice and is not recommended, since it is easy for an error to occur and difficult for the correct elements to be deciphered for marking. ACCA marking scheme Morks Business run as 2 limited company Trading profit o5 Directors’ reetuieration 0.5 Corporation Tax 05 Taxable Income for income Tax 10 No personal allowaace Incoeve Tax Uatility 0.5 20 Goss 1 MCs oS Business run ato sole trader Taxable neame Income Tax Usability Class2 hCs 05 15 OS Class4 MCs 10 Setting ap as a sole trader will cost mare, 10 Ciechiion Total 320 0.0 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 368 368 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 116 TO PRACTICE INCOME TAX AND NATICNAL INSURANCE QUESTIONS: SECTION 6 DEMBE (ADAPTED) Key answer tips This question is a typical ‘higher skills’ question and may initially appear quite daunting as it requires you to consider a number of different taxes. However, each part is only for three or four marks, so does not require an extensive answer. if you are unsure how to answer any part make an attempt anc move quickly on, Part (a) required a goad understanding of the tax relief available to an individual making contributions into 3 personal pension. You should familiarise yoursell with the necessary adjustments and the caloulations required. Part (b) focussed an husband and wife tax planning in retation to capital gains tax. This was a faisly straightforward requirement invalving the savings available as result of using Dembe’s Spouses annual exempt ericunt.and remaining basic rate band. Part (¢} invalved a basic death estate computation and some IMT planaing, The availability and transfer of nil rate bands Is regularly tested therefore this shouldn't have posed = problem, (2) Extension af basic rate tax band £ £40,000 (£32,000 x LO0/RO) at 20% Roinstatement of personal allowance (40% ~— 20%) £12,570 at 40% 8,000 5,028 Reduction in come tax liability National Insurance contributions (NICs) 13,028 0 Total tax reduction 13,028 id Tutorlat note 4 Before making the personal pension contribution, Dembe’s gojusted net income of £130,000 exceeds £125,140, so aa personal allowance is avaliable, The personal pension contribution will reduce Dembe's adjusted net (ncome te less than £100,000 {£130,000— £40,000 = £99,000), so the persunol allowance will be fully reinsteted. 2 KAPLAN Pension contributions have no impact on NICs. PUBLISHING 321 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 369 369 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK>: TAXATION (FA2022) (b) £ £ Disposal made by Dembe £67,000 at 28% Disposal made by Kato £16,350 (£37,700 — £21,350) at-13% £36,350 (£65,000 — £22,300 — £26,350) at 28% 18,760 2,943 10,178 (13,123) {cs} Capital gains tax (CGT) saving 5,639 Additional legal fees (2,000) Overall saving 3,639 On the first death, there will be no inheritance tax (IMT) liability because of the spouse exernption. There will also be no IHT liability on second death because the couple's residence nil rate bands and nil rate bands will exceed the value of the combined chargeable estate: E Cornbined chargeable estate 80,000 Residence nll rate bands (£175,000 = 2) 4350,000) Nil rate bands (£325,000 = 2) |650,000) Chargeable at 40% 0 Even #f |HT were payable (for example, if the value of the estate increases faster than the ovailabte nil rate bands), then there is no advantage to leaving assets to chidren on the first death. This is because unused nil rate bands can be transferred to the surviving spouse. Morks a) Pension saving Extexsion of basic rate band 2.0 Reinstatenrent of personal allowance. 45 National inosrance contributions o.s ao [d} CGT on disposal by Dembe os CGT on disposal by Kato 20 Actditicnal tegal Fees 65 30 322 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 370 370 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE tr) INCOME TAX AND NATICNAL INSURANCE QUESTIONS: SECTION No HT on first death Residence ni rate bands Nil rate bands AT a 40% io os oS 05 OS No adyamtage to losving osents to children on first deoth with cxplorstion 2.0 6 2 Total il? 10 FANG, HONG AND KANG fet] Wolk in the footsteps of a top tutor Key answer tips A question covering three different scenerios all concerned with self-employed individuals. Part (3) is a straightforward question involving the opening year basis of assessment rules and the deductibility of pre-trading expenditure for an individual starting a business, The highigihted words in the written sections are key phrases that markers are looking for. Part (6) involves an established trader who has incurred trading Josses, This is not a difficult question but invetves 3 number of loss offsets and therefore needs to be approached in 2 methodical manner Part (c} involves a partnership where one of the partners is retiring, This Is acommonty tested scenano and should not have coused any difficulties. (2) Fang 1 Assessments £ 2020/21 Actual (1 August 2020 to S Apri! 2021) (£45,960 * 8/12) 30,640 2021/22 CYB (Year ended 33 July 2021) 45,960 2022/23 CYB [Year ended 34 July 2022) 39,360 lo the tax year 2021/22 there are overlap profits of £30,640 (i.¢, the eight-month period 1 August 2020 to 5 April 2021) 2 Pre-trading expenditure ° The trading expenditure will be treated as incurred on 1 August 2020 provided it was incurred within the previous seven years and would have beer atlowabie if the trade had already commenced. > The computer equipment which Fang already owned will be an addition for capital sllowances purposes besed on its market value at 1 August 2029, KAPLAN PUBLISHING 323 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 371 371 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (b} Hong ey Tutor’s top tips There fs @ lot of information in this relatively short question, which con appzor daunting so it | és important to approach the questian ina methoadiaa manner, You ore asked to cofculute texoble income, toxoble goins and the amount of trading loss carried forward ~ so layout your ore formas and stort by fillveg in the easy numbers. Then consider the trading losses — dealing with the earlest less first. You are told how to offset the lass for the year ended 5 April 2023 In the question so you do not need to decide how best _ to use the fess —just follow the instructions! Taxable Income = 2021/22 Trading profit £ 29,700 Less: Loss relief b/f (2,690) 27,100 Property income Total Income 3,900 31,000 Less: Lass relief - ¢/b from 2022/23 {31,000} Net came Less: Personal allowance 0 {wasted} Taxable income 0 Taxable gain - 2023/22 & Chargeable gain Loss: Trading loss relict (W2) 17,800 {11,620) §,200 Less: Annual exempt amuunt (part wasted) {6,200) 0 Less: Capital toss b/f (Note) Taxable gain {0} 9 The trading loss carried forward is £3,200 (W2). 324 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 372 372 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 ia Tutorial note Relief for trading losses ogeinst tota! income and net chargeable gains is ‘all or nothing’ the. the refef cannot be restricted to preserve the PA for incarne tax or the AEA for CGT). However, capital losses brought forward are offset after deducting the AEA. Therefore, in this cose, Capital losses brought forward would not be utilised and would be carried forword to set ogalist fulure net chargeable guins. Workings {W1) Trading loss retief Thé trading loss relief claim against the chargeable gain = Lower of: Chargeable gain less capital loss brought forward © (E17,800 ~ £6,200) = £12,600, and Trading loss remaining > (£45,800 — £31,000) = £14,500 Therefore, can anly offset £11,600 against gains {W2) Loss memorandum £ Loss — 2020/21 2,600 Less: Set off against trading profits ~ 2021/22 (2,600) Loss — 2022/23 48,800 Loss: Carry beck against 2021/22 income Loss reliet extended to capital gains in 2021/22 (W1) Loss carried forward (313,000) (12,690) 3,200 > Tutorial note The loss brought forward from the tax year 2020/21 must be set against the first available trading profits in subsequent years (ie. 2021/22). The loss is offset before losses arising in Jater years. The Joss arising in the tox year 2022/23 can be offset against total income in the tax year{s) 2021/22 andsor 2022/23. Once a claim hos been made to offset the loss against the total income of Q particular tax year [¢.g. 2021/22) a cioim con also be made to offset any remaining trading lasses against chorgeabie gains of the same tax year. KAPLAN PUBLISHING 325 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 373 373 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (c) (FA2022) Kang, Ling and Ming Allocation of profits Total éE Kang £ Ling £ Ming £ Year ended 30 June 2021 148,800 49,600 45.600 45.600 {£136,800 x 4/12 *.1/3} 1 November 2022 to 30 June 2022 45,600 15,200 15,200 15,200 {£136,800 x 8/12 x 4) 91,200 45,600 45,600 0 136,800 60,800 60,800 15.200 Ling £ Ming £ {£448,800 x 1/3) Yeor ended 39 June 2022 i july 2021 to 31 October 2021 Trading income assessments Kang E 2021/22 Year ended 30 June 2023 - CYB 49,600 43,600 Cessation (tubes: Year ended 30 June 202% 49,600 Period ended 31 October 2021 15,200 64,800 Less: Reliet for overiap profits (29,400) 35,400 2022/23 Year ended 30 June 2022 — CYB 60,800 60,200 G ba Tutorfal note The cessation rules apply to Ming for the tax year 2021/22 since she ceosed to be a partner on 31 October 2021. Her basis period for the tax year 2022/22 runs from the end of the basis | pericd for the tox yeor 2020/21 to the date ef cessation i.e, 2 July 2020 to 31 October 2021). 326 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 374 374 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 ACCA marking scheme Marks tot 2 - 2020/7 Lassessment 18 2021/22 saseasment os§ AOAZIZ3 SiSeSeN eT 05 Overap profits 10 34 2 = Pretracting revenue esperdinuce Addition for.capaal allowance purposes ot MV 0 1 78 #b) Faxabic fecome Treading profit Less tracing losses byt Property buaness profit Less ees of 2222/23 against totl income 05 65 os 05 FA=EO OS Trakie gin Chacgeatia pain less trading loss rated AES, o5 0.5 Trading tass 05 Meaimurn toss rete! against chergrabk gain 10 54 scl Aforation of profits Year ended 30.6.2022 Year ended 19,6,2002 0.5 is Assessments 2071/22 — year ended 62071 0.5 2021/22 + pies pericd ended 32.10.2021 for Ming Ming overap rehef ta be] 3073,99 O45 5.4 Total 118 NA STYLE (ADAPTED) 15.0 fe Walk in-the footsteps of a top tutor Key answer tips This question is 8 classic self-employed individual scenario, testing opening year’s basis of “assessment and the compilation of an Income tax computation. There is also an element of self-assessment at the end. The first part ts relatively easy te score highly on. Part [b) was straightforward provided the self-assessment rules had been learnt and applied to the information given. KAPLAN SUSLISHING 327 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 375 375 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Tutor’s top tips | Remember to read the requirement carefully. This question has clear mork allocations, which should be used to allocate the time spent on | eoch section. You need tu adopt o lagical approach, using the requirements to break dewn _ the information and plen your answer. The first port just requires the opplicotian of the opening yeor rules fo figures given in the | question. ft is possibie to score very well on this sart of question, which is not technicafly | difficult, as tong os you do not ponic | Be sure to expfain your onswer: cleoriy shovang the tax yeor, basis of assessment and | calewiation so thet method marks can be given even if the maths goes awry! | Don't forget to highlight the overlap profits ox they ore specifically asked for ond will therefore | earn a mork. (a) Assessable trading profits— first four tax years Tax year 2019/20 Basis of assessment Actual basis £ (1 January 2020 to S April 2020) (£25,200 « 3/6) 2020/24 12,600 First 12 months trading (1 January 2020 to 31 December 2020) £25,200 + (£27,600 « 6/12) 2021/22 Current year basis (Yearended 30 June 2071) 2022/23 39,000 27,600 Current year basis (Year ended 36 June 2022) 32,315 Overlap profits Tax year 2026/21 Profits taxed twice (A January 2020 to S Aprit 2020) (£25,200x 3/6) 2022/22 = £ 12,600 (2. July 2020 10. 32. December 2020) (£27,600 « 6/12) 13,800 26,490 328 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 376 376 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 Eg Tutorial mote The assessment for the second tax yeor (2020/21) is the first 12 months of trading cs the accounting period ending in thot yeor is less thon 12 manths fang. {b} 2 income tax computation 2022/23 Tutor’s top tips For part (6) @ systematic opprocch is needed. Remember not to ignore exempt incame, as credit is given for stating that it is exempt, even though you do NOT include the figure in your computation. Part (b) 2 goes an to require the bolancing payment after taking account af poyments on account (POAs) already peid, and then requires the POAs to be paid in the foifowing year, £ Trading profit 31,315 Building society interest 7 Interest from ISA (exempt) 0 Interest from NSS savings certificate fexempt} 0. Interest from government stocks Dividends 370 5,200 Totel income Less: PA 37,585 (42,576) Taxable income 25,015 Analysis of income (Note) Oividerds = £5,200 Savings {£700 + £370) £1,070 Non-savings income [£31,315 ~ £12,570) » £18,745. Income tax t 28,745 x 20% (non-savings income) 1,000 x 0% [savings income) 70 = 20% [savings income) 2,000 x 0% (dividend income} 3,200 * 8.75% (dividend Income) £ 3,749 0 14 6 280 25,015 Income tax payable KAPLAN SUBLISHING 4,043 329 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 377 377 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) (9 Tutorial note There is nothing wrong in presenting your computation using one column for al’ sources of income {rather than different cafurmins for non-savings, savings and dividend income} if you } prefer. | However, you de need to be able to break down the taxable income into the different types | of income, nomrely: dividends, sevings gad nan-savings Income, in order to apply the correct | rotes of tax to corh type of income, | Basic rate taxpayers ore entitled to.a £1,000 nil rate bend for savings insome_AE2,000 ait rete band is ols avoilable te all taxpayers for dividend income. 2 Tax payments ° Na’s balancing payment for the tax year 2022/23 due on 31 January 2024 is £843 (£4,043 ~ £3,200), * Hor payments on account for the tax year 2023/24 will be £2,022 and £2,021 (£4,043 « 50%). These will be due on 31 January 2024 and 31 July 2024, | Examiner’s report | This question was very wall answered, and there were many high scoring answers. _ In part (a) some candidates lost marks Secaus they cki not show the relevant tax years | in. which profits were assessable. | As regards the balancing payment _mot aware of the relevant dates, | Note; The examiner's report and paymerits has been on account, edited te remove candidates comments were often on elements of the question that have been deletad due to changes to the examination format, 3 ACCA marking scherne _ Marks [a 209/20 PIO! 723.392 2022/23 1.6 ~ Assessment Lo — Overlap profits LO wm AsstAsment — Gverisp profits ~ Aorament 10 Lo 10 69 330 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 378 378 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE tb) 1 INCOME TAX AND NATIONAL INSURANCE QUESTIONS: income tex computation Trading pats Sulding society interest 05 0.5 \oGvidual savings account 0.5 Iimtorost From WEBS savings cortilicote os interest from government stocks Dividends o5 us Persoaal wlowance imcome tex o5 25 SECTION 6 69 2 Tam payments Celancing seyment Payments co eccount »Be | 2.5 30 Total 119 15,0 ZHI (ADAPTED) re Walk in the footsteps of a top tutor Key answer tips This question Is a typical “higher skills’ question and may initially appear quite daunting as it requires you to consider a number of different taxes. However, each partis only for two or three marks, so dees not require an extersive answer, If you are unsure how to answer a part make an attempt and move quickly on. The common theme of all the parts ts the amount of tax that can be saved by different courses of action. So make sure you focus on this and compare your revised computation to the original liability. Ensure you look out for opportunities to “work in the margin’ as in part (d) where a full computation of the revised PAYE and NIC Is not necessary. You could save considerable time in the examination by realising that you simply needed to calculate the tax on the bonus at the appropriate rate of tax/NIC depending on the taxpayer's Circumstances ic. basic rate or higher rate taxpeyer. (a) 1 The bataming payrnent for the tax year 2021/22 due on 31 January 2023 cannot be reduced, 2 A claim can be made to reduce the paymenton account for the tax year 2022/23 due on 31 January 2023 by £5,040: £ Current POA (E27,600 + £4,204] x 50% 15,902 Revised POA (£18,000 + £3,724} x 50% (10,862) Reduction KAPLAN PUBLISHING 5,030 331 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 379 379 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (b) Current CGT liability Revised CGT Fability Proceeds not reinvested (£210,000 — £264,000} 12,800 46,000 (12,300) Annual exempt amount 33,700 CGT £33,700 x 20% {6,740} Reduction 6,120 ig Tutorial note _ Equivalent morks will be awarded if the reduction is aiternatively coicuioted as £30,000 _ (£76,000 — (£210,000 — £164,000)) at 20% = £6,000, {c}) 1 The basic tax point for goods is the cate when they are made avaiable to the’ customer, which inthe case of Zhi's sale is 12 December 2022 2 An invoice date of 1 February 2023 will not affect ths because the invoice will not have been issued within 14 days of the basic tax point. 3 Zni therefore cannot reduce the amount of VAT payable on 7 February 2023 td) £ First employee PAYE (£3,500 « 20%) 300 Nic; Employee [£1,800 * 13,255) Employer (£1,500: 15.05%} Second employee PAYE (£5,000 « 40%) Nic; Employee (£5,000 x 3.25%) Employer {£5,000 « 25.05%) Reduction The postponed PAYE and Nis 22 February 2023. 332 299 226 2900 163 753 3,641 of £3,641 will be payable one month later on KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 380 380 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Examiner's report Basic tax planning Where o question is just for two or three marks, condidates should realise that long, detailed, tomputations or written answers are not expected. Questions of this nature often require candidates to work at the margin.It is. much easier {and quicker) to work out, for example, that the tax reduction if a higher rate taxpayer's income falls by £5,000 is £5,000 at 40% = £2,000, rather than producing full before and after ‘tex computations. (fa tax figureIs given as part of a question, then candidates gain nothing by then caleviating this figure for themselves. A suggested tax planning strategy might not necessarily be effective; and candidates need to have the courage to base their answer on this conclusion if ted there besed on the application of basic principles. In such situations, too many candidates want to answers the question that they wish had been set, rather than the one that has been set. ACCA marking scheme Nearks ta} Income tex aed nathenal irsurance AOZ1/77 balancieg payreent con't be reduced 2022/23 payment on accoust reduction as 15 24 b) = Capital gains tax{CGT} Currest OGT fability Proceeds not reinvested Aanual exempt amount 05 148 10 CGT @ 20K os 3.4 te) Value added tax (VAT) Basic tax poe os Invoice raised after 14. days in NO reduction possible as 24 td) PAYE ard NICs Fest employee: PAYE as Employee and amployer's NIC os Second employer PAYE Employes and employer's NIC Payment delayed by 2 month os 10 05 3a Total KAPLAN PUBLISHING 11.0 335 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 381 381 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 120 JADE | Key answer tips | Part (a) is a simple defivition style question about the differences between tax evasion and tax avoidance. The question clearly states |t wants you to ‘briefly’ explain, and is only worth _ two marks so don’t spend too long here! Part (b) requires a calculation of the income tax payable and class 1 NiCs for Emerald in the year We know that Emerald will only be working for three months with a total salary less _ than the personal allowance. So again, we dan’t want to spend tao long on this question as the main feature of the question is a simple NICs calcwation. There |s more than one acceptable method to calculate NICs for a period of less than a year. Part {c) is the longest part of the question at six marks, requiring the caiculation of the overall saving of income tax and class 4 NiCs in the year. Remember to show your workings for each | Step clearly here, as you can pick up iols of easy marks through your workings! (a) =: Difference between tax evasion and tax avoidance Tax evasion & ilegal and involves the reduction of tax Habilities by not providing information to which HM Revenue and Customs (HMRC) & entitled, or providing HMRC with deliberately false information. In contrast, tax avoidance involves the minimisation of tax liabilities by the use of any lawful means. (b) Income tax payable and class 1 NICs suffered by Emerald Emerald will not have any income tax liability for 2022/23 because her salary of £6,000 is lass than the personal allowance of £12,570, Employee class 1 NICs will be: £2,000 - (€12,570/12) at 13.25% «3 = E379 ee Tutorial note The olternative approach using the annual earnings threshald and then taking 3/1 2ths of an _ annual NIC figure ts acceptoble. 334 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 382 382 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL {c} INSURANCE QUESTIONS: SECTION 6 Jade’s overall saving £ Emeralt Salary (£2,000 x 3) 6,000 Employer class 1 NICS (working) 561 Annual investment allawance {£14 000 x 100%) 14,000 Xeyemployee 10,000 1,505 Bonus Emplover class 1 NICs (€10,000 at 15.05%) Orawings 0 32,066 Income tax saving £32,066 at 45% NiCs saving £32,066 at 3.25% 14,430 1,042 a Tutorial mate The jevel of a business owners drowings has ne impact on the income tax fiabilty or class 4 MICS, Working — Employer class 1 NICS £2,000 ~ (£9,100/12) at 15.05% «3 « £561. ACCA mariding scheme Marks tal fb) Tas evasion Peygtanation Tax avoldence explanation Croerald’s (T/ Nis payable 2022/23 SHary below PA therefore no IT lability «) os Gass 1 Nis cakulstion Errecatd satery is os Empleyer class LNIC Annual pwastment allowsece 1s 10 Koy employee boras/femployer NiCs is Jade's drawings os IT/MC saving 10 Total KAPLAN 10 1.0 SUBLISHING 10.0 335 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 383 383 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Examiner's report As is typical for the 10-mark question, the question gave forecast income and tax details for Jade, who was self-employed and paying income tax at the additional rate, and then asked candidates to consider the implications of four measures aimed at reducing her income tex Bability and national Insurance contributions (NtCs) for the tax year 2022/23. Witha trading profit in excess of £200,000, it should be clear that any reduction in tax lability will be at the rate of 45%, with any NIC reduction at the rate of 3.25%. The fact that a specific trading profit figure was not provided was a clear indication that workings were to be carried out st the margin. Although full tax computations were equally acceptable (generally based on a spurious trading profit figure of £200,000}, a working at the margin approach was the most efficient way to attempt the tax calculations in respect of the four tax planning measure for part (c). The four measures were: * Jade's employmentof her daughter, Emerald, for a three-month period * Bringing forward the purchase of new office equipment 2 Paying @ bonus to 4 key employee; and e Reducing the amount of drawings taken out of the business by Jade. However, it Is always important to read the question carefully, For example, only the bonus was relevant, since the employee's salary bed already been deducted in cakulating Jade's trading profit. Requirement (a) - 2 marks Briefly explain the difference between tax evasion and tax avoidance. Provided candidates remembered the difference between tax evasion and tax avoidance, this section was very well answered; the majonty of candidates gaining the full two marks. It wos also encouraging to see that very few candidates felt the need to provide long, detailed, answers, heeding the requirement to keep answers brief, Requirement (b) = 2 marks Calculate the Income tax payable and class 1 NiCs suffered by Emerald for the tax year 2022/23. This section was generally not well answered, The majority of candidates realised that with income of £6,000 (£2,000 x 3), Emeraid would not have any income tax lisbility for the tax year 2022/23, since this Is less than the personal allowance. A few candidates missed this easy half mark because they time-apportioned the persona allowance by 3/12ths. The class LWNIC aspect was more problematic, and only a minority of candidates appreciated that NICs meeded to be applied on @ monthly basis, Full marks were given whether: ° NICs were calculated on an annual basis, and then pro-+ated by 3/12ths ((£24,000 — £12,570} x 13.25% * 3/12 = £379) * Amonthtly threshold was used, monthly NiCs.cakoulated, and this figure then multiplied by three ((E2,000 — £1,048] 13.25%« 3 = £379); or ° A three-month threshold was used along with the three months of salary ((£6,000 — £3,143) x 13.25%= £379). Those. candidates who, inexpliably, based their answers on a figure of £200,000 (the spurious trading profit) did not achieve many marks. 336 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 384 384 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Requirement (c} — 6 marks Calculate Jade's overall saving.of income tax and class 4 NICs for the tax year 2022/23 if she undertakes the four tax planning measures, This section was generally answered reasonably well, although very few candidates achieved full marks. Most candidates gained the easier marks available for this section by calculating that Jade’s trading prof would be reduced by Emorald’s salary (£6,000), the annual investment allowance on the new office equipment (£14,000 « 100% = £14,000) and the bonus paid to the key employee (£10,000). That was two marks. The next step was to appreciate that the reduction in drawings had no impact on taxable prom, arxi to calculate the saving of income tax and cass4 NICs at the marginal rates of 45% and 3.25% respectively, Another 1.5 marks Those candidates who opted for a full computation approach wasted a fot of time, and there was much more chance of making an error, The NIC aspects of this section for the final 2.5 marks were only picked up by a minority of candidates: For the £10,000 bonus, employer dass 2 NICs were simply at the rate of 15.05% because, with an annual salary of £65,000, the employee was clearly already caming in excess of the monthly threshold (€9,400/12 « £758}. For Emeraid’s salary, similar calculations were required to those in part {b). So this could have been: ® {£24,000 -€9,100) « 15.05% x 3/12 =£561 « {£2,000— £758) * 15.05% * 3 = E561; or © — {£6,000=£2.275) x 15.05% = E561. The fact that the section was for six marks, should have been an Indication that the answers Outlined in the first two paragraphs above were insufficient in themschvcs. Itis best practice to show all workings on the face of the spreadsheet rather than only within ‘cells. Only the most basic of cakulations should be done within a cell—and even ther its not recommended. For example, the employer class 1 NIC working shown above: (£24,000 = £9,100) x 15.05% x 3/12 = £561 if Inchuded within a cell, tt can be easy to forget the brackets (or not even know they are required) so that the answer becomes: £24,000 — £9,100 x 15.05% * 3/12 = £23,658. KAPLAN PUBLISHING 337 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 385 385 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 YX-UK: TAXATION (FA2022) 121 RICHARD FEAST (ADAPTED) fae} Walkin the footsteps ofo top tutor o Key answer tips | Part {a) isa fairty straightforward acjustment of trading profit computation, which should nor | have caused any problems. Part (b) requires employer's NIC calculations for an employee. it was important to limit your answer to just the classes. oF NIC required, Part (c} requires knowledge of basic self-assessment administration issues ard shoukd not | hove caused any problems. The highlighted words in the written sections are key phrases | that markers are looking for (a) Trading profit — year ended 5 April 2023 Tutor’s top tips | This stroightforward adjustment of profit computation is presented in a fomiliar format, with _ a statement of profit ov loss followed by a number of nates. As is common with this type of question you ore instructed to start your computation with the _ net profit fiaure and list all items in the question, using a zero Hf no adjustment is necessary. Note thot marks are avaliable for correctly showing zero for a non-odjusting Jtem, so do not | lose easy marks by ignoring these items. Work methodically through the statement, referring to the. notes where appropriate, and entering each item in your computation as you go, | Remember to adjust for private use by the proprietor, but not on employee. £ Net profit Carexpenses Carexpenses 32,200 — Richard (£4,710 x 70%) —Chef 3,297 0 Parking fines Property expenses {£16,200 « 1/5) Decorating — Restaurant 280 3,240 0 — Apartment 1,220 Other expenses ~ Logal foes (capital) 2,590 42,927 338 Less: Capital allowances (W) (3,780) Tracing profit 39,147 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 386 386 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 Working: Capital allowances Main Private Business pool use car use £ £ % Additions not qualifying for AIA: Private use car (1 = SOg/km) Car (1—5Og/<rn) Allowances E M000 16,800 WDA {1B%) {2,520} WDA (18%) (3,024) TWOV c/F 13,775 30% 756 3,024 i460 = Tutorlal note Both cars have CO; emissions between 1 ond 50 grams per Kilometre and therefore qualify for writing down allovvances of the rate of 18%, The private use of o car by an emoloyee is irrelevant, since such usage will be ossessed on the employee as a beriefit. {b} = Employer national insurance contributions. —— Tutor’s top tips This question only requires the colculetion af the emplayer’s NIC habilities, so do not waste tine calevioting emptoyee NICS, Make sure that you clearly identify the different classes of MIC payable (ie. class 1 and class 14) ond the different income on which they are charged. £ £ Employer's cass 1 NIC {£46,000 — £9,100) * 15.05% Less: NIC employment allowence (Note) 5,53 {5,000} 553 Employer’s class 18 NIC KAPLAN £2,352 (Wi) « 15.05% 354 Total NICs 907 SUBLISHING 339 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 387 387 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) 9 Tutorial note As the chef is the only employer the employment allowance will be offset against the _ employer's class 2 NIC lability on his salary. As this is the first year of trading, Richard's por | year’s closs I employer's NIC bill wos clearly nil. l. Working: Car benefit % Hybrid-electric car with 25 mile range 14 List price (same as cost} £16,800 Car benetit (£16,800 « 2435) jd) 2 £2,352 Self-assessment ¢ Unless the notice to friea return ts issued tate, the latest date that Richard can file a paper self-assessment tax return for the tax yar 2022/23 is $1 October 2023, * 2 However, he has until 34 January. 2024 to file his self-assessment tox retum forthe tax year 2022/23 online. Compliance checks ° if HM Revenue and Customs intend to carry out a compliance check inta Richard's 2022/23 tax return, they will heve to notify him within 22 months of the date that they recewe the return. © HM Revenue and Customs have the right to carry outa compliance check #8 regerds the completeness am accuracy of any return, and such a check. may be made on a completely random basis. . However, compliance checks are generally carried cut because of a Suspicion that income has been undeclared or because deductions have been incorrectly claimed: For exampte, where accounting ratios. are out of line with industry norms. 340 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 388 388 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 fa) Car expenses ~ Richard Cat expenses - Chef Parking fins Property expenses Decorating — Restaurant Decorating — Apartment Legal foes ~ Purchase of property ereceged ACCA marking scheme Working ~ Capital allowances WOA co Car 2 Employer's class 2 cakulstion Deducting employment dlowance Gass 1A calodstion Car Devel calodation Ic} 1s Paper retum date Oning rene n date 2 Notify within 12 tmorths of date rece bed return Righ® to catry cut compliance check an aryy resuen Generally carried cat if suspicion of errors in retunn Total KAPLAN PUBLISHING BE /SREslshegRe [FISISSSISISEl ~ Provett use (PU) car — in own colrnan — Cor - a main pool WOA om PU car 341 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 389 389 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 YX-UK: TAXATION (FA2022) 122 ALFRED AND AMAIA ie 2 Wolk in the footsteps ofa top tutor o Key answer tios | This question is based on income tax and is split Inco nwo requirements. Part (2) requires | As this is a short This part of the dealing with the you to calculate the tax adjusted tracing profits fora seven-month period. accounting period this will impact the amount of AIA and WDA avellabie. question alsa has a feas® premium paid during the period. When you are premium you need to use the formula to work out the amount taxable on the landlord and apportion this over the years of the lease. This will need to be time | apportioned for either the length of accounts or & paid part way through a period of accounts. Part (b) requires you to caleulate the incorne tax payable for an individual with variaus sources of employrnent income as well as property Income. The calculation of the employment income should have provided easy marks as & contained core areas, The property income should also have been straight forward as long as you remembered not to | allow the mortgage interest as an allowable deduction against property income, tut to _ instead treat It as an income tax reducer at 20% relief on the amount of interest charged. (a) = Alfred — Tax adjusted trading loss for the seven-month period ended 31 March 2023 £ Trading profit Pre-trading expenditure 63,000 (5,000) Deduction for lease premium (working 1} Client entertaining Capital allowences (working 2) (2,435) 0 (128,520) Trading tos (61,955) Working 1 — Deduction for lease premium £ Premium paki 30,000 Less: £20,000 « 2% « (10-1) (5,400) 24,600 Deduction £24,600/10x 7/12 342 1,435 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 390 390 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: £ Main pool é SECTION 6 Working 2 ~ Capital allowances Allowances F Addition qualifying for the annual investment allowance (AIA} Plant 3nd machinery AIA — 100% Car 116,000 (116,000} 116,000 24,000 WDA — 18% « 7/12 (2,520) WDY carries forward 21,430 Total allowances 2,520 118,520 fe Tutarjal note 4 The cost of the marketing campaign is deductible because it was incurred in the seven years prior to the commencement of Alfred's trade ond it would be deductibie under general principles. 2 The car hos CO; emissions between 2 ond SO grams per kilometre, and therefore qualifies for writing down allowances at the rate of 18%. {b}) Amaia = Income tax payable for the tax year 2022/23 £ Employment income Salary Car (£25,000« 15% « 3/12) Job related accommodation Property Ipcome (working) o 14,350 Personal allowance 95,288 (12,570) Taxable incorie 82,718 £37,700 ot 20% KAPLAN £0,000 938 7,340 £45,018 (£82,728 -£37, 700} at 40% 13,007 interest relief {£2,500 at 20%) 25,547 (520) Income tax lability. PAYE 25,027 (19,432) income tax payable 5,595 SUBLISHING 343 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 391 391 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Working = Property income £ Rent received (£1,200 « 13) 15,6006 Insurance (1,250) Mortgage terest Go Property income 14,350 id | Tutorial note i The car has CO; emissions of 52 grams per kilometre therefore the percentage is 15%. 2 The living occammedation ix job-related and therefore is exempt from incene tax. | Examiner's report The income tex question was based around Alfred and Amaia, a married caoupte. Alfred commenced trading as a sole trader on 1 September 2022, with draft accounts prepared for the seven-month period anded 31 March 2023. The requirement & to prepare | a revised tax adjusted trading profit or loss taking into account ore-trading expenditure, a premium paid to acquire a ten-year | entertainment and capital allowances. lease on @ workshop, expenditure on cient | Amaia is employed by Argole Ltd, and also has property income. The requirement is to calculate the income tax payable by her for the tax year 2022/23 taking into account a car | benefit, job-related living eccommoadation and tax relief for finance costs. | Although the question was reasonably well answered, its straight?orward nature meant that _ marks really should have been higher Requirement |a) — 6 marks Candidates need to take care wher it comes to using negatives in the soreadsheet, Entering appropriate negative and positive amounts and then using the SUM function on the | spreadsheet is the most straightforward process and avoxis simple errors, Here the | computation commenced with a draft trading profit of £63,000 but ended up as a trading | boss Of £61,955. The deduction for the lease premium caused problems, and in some cases was even treated as Income. One aspect which was frequently overlooked was the need to restrict the | deduction by 7/12ths because of the seven-month period of account. The capital allowances working was generally not answered as well as would be expected, | There is @ 100% annua mvyestment allowance chim of £116,000 in respect of plant and | equipment, end an 18% writing down allowance fora cer but restricted to 7/12ths. Just one type of retief was often applied ta both additions. Also, the capital experditure was | sometimes adjusted for in addition to the deduction for cagital alowances, 344 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 392 392 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Requirement (b) —9 marks Here, the two benefits surprisingly caused problems: . With the car, the amount paid of £23,500 was often used rather than the list price of £25,000. The restriction to three months of the tax year (the cur was only provided from 2 January 2023) was also frequently missed. . With the job-related accommodation, many candidates did not appredate that there is no benefit. Even when the benefit was stated as zero, they still included the rent paid by Argole Ltd of £2,500 per month, As regards the property income, very few candidates correctly dealt with the finance costs. The question states that Amala made mortgage payments of £6,000, Including interest of £2,600. The capital repayments of £3,400 (£6,000 — £2,600) are completely irrelevant, and there i a finance costs reduction of £520 {£2,600 at 20%) given against Amaia's income tax liability. Too many candidates were determined to do something with the capital repayments, and the finance costs reduction was often included when cakulating property income. The cash basis is the default when it comes to calculating property income. This means that: . The 13 months’ rent received during the tax year 2022/23 are all incuded. . Only the insurance premium actually paid of £1,250 on 1 December 2022 is deducted 85 Bh expense. The amount pald on 1 December 2021 is not relevant. Both points were frequently dealt with incorrectly, Additionally, it was disappointing to note that some candidates deducted the PAVE of £19,432 against Amaia’s salary rather than against her income tax liability. ta} Trading Profits Pre trade expenditure Leese Premium Client ertortaining Capial Afowances (bh) Ssilary Car benefit Job related accomeodation Property incorne Personal allowance lacome Taxx Liability batorest relief PAYE KAPLAN PUBLISHING [Eleleeceescs|slrece § ACCA marking scheme 345 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 393 393 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) TRADING LOSSES 123 NORMA (ADAPTED) _ Key answer tips ‘The first part required the computation of taxable income for fiva tax years before | considering loss relief, Marks shoukt have beer gained here im laying aut pro forma | computations and filling in the easy numbers before applying the opening and closing year | rules to establish the trading income assessments. A boss arises in the final tax year and so the trading income assessment in that year is £0, The second part involved conmsHeration of the options available for less relief, including 3 | terminal loss | itis important to communécate to the examining team that you know the loss relief rules: _ however you must apply the knowledge to the specific facts of the question, "The highlighted words in the written sections are key phrases that markers are looking for, {a) Taxable Income and gains before loss rellet 2018/19 2015/20 2020/21 2021/22 £ £ t fi 27756 27,000 1650 9,835 a 3,250 3,250 3,250 3,250 $,500 3,250 Total income Less. PA 31,00 {12,870} §8=930,250 (12,570) Taxable income 18430 17,680 Tracing income (W) 2022/23 t Employment income (£11,400 x 10/12) Interest income Taxable gain 346 §=8990350) = 33.085 ~— ‘12,750 {22,570) (12,570) (12,576) 7,580 515 1&0 38,000 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 394 394 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION £ E 6 Working: Trading Income Tax year Basis of assessment 2018/19 Actual basis (1.5.18 - 5.4.19) Period to 31.12.18 1.1.19 = 5.4.19 (£27,000x 3/123 21,000 6,750 27,750 2019/20 2020/21 Year ended 31.12.29 Year ended 31.12.20 27,000 16,990 2021/22 Year enced 31.12.21 9,835 2022/23 Year of cessation Penrod to 31 May 2022 Less: (11,000) Overlap profits (1.1.19 -—5.4,19) (£27,000 x 3/12) (6,750) Trading loss/Trading assessment (17,750) 0 = Tutorial note ifthe trader does not have o 21 March (or 5 April) yeor end you should be looking for overiag profits. The overlap profits increase the Joss of the final tox year and is included in the colculotion of the terminal loss. {b} Options available to utilise trading loss 1 Relief against total income The loss arising in the tax yoar 2022/23 can be set against total income in the same and/or previous tax year, in either order. 1 Setting the foss against total Income of the tax year 2022/23 first (.c. employment income and bark interest) would reduce total income to £0, would waste the persoral allowance and save mo tex (see Tutorial Note). The remaining loss of £5,000 (£17,750 — £12,750) could be offset against total income of the tax year 2021/22, wasting part of the personal allowance and saving 70 tax (see Tutorial Note). Setting the loss against total income of the tax year 2021/22 first would reduce total income to £0, would waste the personal allowance and save no tax. The remaining loss of £4,665 (£17,750 ~ £13,085) could be offset against total income of the tax year 2022/23, which would waste part of the personal allowance and save no tax. KAPLAN PUBLISHING 347 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 395 395 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (9 Tutorial note The rate of tax saving when offsetting the loss aaainst total income is 0% becouse Norma's _ taxable income is soviags income which will fall into the first £5,050 af taxoble income in | those years. 2 Retief against chargeable gains Alternatively, once a claim has been made to offset trading losses against total income in the tax year 2021/22, a Gaim can te made to offset any remaining losses against chargeable gains in the same lax year, Accordingly, the £4,665 loss remaining after the offset against total income in the tax year 2021/22 could be set against the chargeadle gain arising in June 2021, which will save tax at 10% on sore of the gain and 20% on the remaining gait (see Tutorial mote). ia Tutorial note Currently, before Joss relief, there is £37,185 (£37,700 — £515) of gain in the basic rote band | and £815 {£38,000 — £37,185) in the higher rate band. So using £4,665 af joss ageinst the gain would sove 20% on the top £815 af the gain, and 10% | on £3,850 (€4. 665 — £815). 3 Terminal loss relief The joss arising tn the final 12 months of trading can be set against: available trading profits in the tax year of cessation, and 348 * the three preceding tax years ° on a last-in-first-out (UFO) basis. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 396 396 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATICNAL INSURANCE QUESTIONS: SECTION 6 Calculation of terminal loss £ 1 6 April before cessation to date of cessation (6.4.22 — 31.5,22) [£11,000 lossx 2/5) 2 4,400 (12 months before cessation to 5 April before cessation £ 1.6.21 -—31.12.21 (£9,835 profit x 7/12) 1.1.22 -5.4.22 (£11,000 loss x 3/5) 5,737 (6,600) (863) 3 Profit Loss Net Loss Overlap profits 1.1.19 -5.4.39 (£27,000 x 3/12) 863 6,750 Terminal loss 12,013 Utilisation of terminal loss Norma has no trading profits in the tax year of cescation- The terminal loss can therefore be carried back against the trading profits arising in the preceding three years, on a UFO basis, as follows: Trading income Less: Terminal loss relief Interest income Net income Less: PA Taxable income 2019/20 £ 27,000 (0) 2020/21 E 16,900 (2,178) 27,000 3,250 14,722 3,250 2021/22 E 9,835 (9,335) 0 3,250 30,250 17,872 3,250 (12,570) (22,570) {12,570} 17,680 5,402 0 The terminal loss reduces taxable Income in the tax year 2021/22 to £0, wasting part of the personal allowance end saving no tax. The remaining toss of £2,278 (£12,013—£9,435) is then offset against the treding income In the tax year 2020/21, saving tax at 20% on £2,178 {£7,580 — £5,402}. KAPLAN PUBLISHING 349 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 397 397 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION 124 (FA2022) ASHURA (ADAPTED) ie Wok in the footsteps ofo top tutor I- | Key answer tips This question covers the situation where an individual is employed then also sets up a | business, which is initiatly loss making. This type of scenrio is common in examination questions: | Part (a) should have provided easy marks for stating the advantages ofa 5 April year enc, The calculation of the loss in part (b) was straightforward provided you remembered to time _ apportion the wnting down allowance in the opening period of account. (a) 1 The application of the basis period rules is nore straightforward, 2 There will be no overlap orofits: The basis period in the year of cessation will be 2 maximum of 22 months in length, rather than the potential 23 months that could arise witha 30 April year end, (b) Ashura= Trading loss for the nine-month period ended 5 April 2023 £ Draft tax adjusted trading profit 49,930 Dacoration of mew office {3,109} Structures and bulidings allowance (W1) {2,395} Capital allawences [W2) (22,259} Tax adjusted. trading lose {6,525} (W414) Structures and buildings allowances £ Qualifying excenditure ~ building cost (Note 2) 350 37,600 SSA at 3% 2,528 Time apportion (4 July 2022 —5 April 2023 = 9 months) 2,196 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 398 398 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 {W2) Capital allowances Main Additions (mo AIA) Car (>50 g/km] pool Special rate pool £ £ Private use car E 19;200 Additions [with AlA| Heating system Vater system AIA (special rate pool) — LOOX Laptop computer AIA (main poo!) ~ 100% WDA 6% 9/12 {Note} TWDV f/f 5,100 4,200 {9,300} 3,300 2,600 (2,600) 2,600 (854) 18,336 x 30% 259 12,159 = Tutorial note 4 The heating ond water systems qualify as. integral features rather than part of the cost of the building. Ihe decoration costs are qualifying revenue expenditure. 2 Ashura’s car has CO, emissions over 50 grams per Kilometre. and therefore only qualffies for writing down ollowances at the rate of 6%, The business mileage is 2,400 out of 8,000 miles fix. 20%). 3 The Japtep computer purchased ori 10 June 2022 is pre-trading copital expenditure, and is therefore treated as incurred on 1 July 2022. {ch 1 The trading loss would be relieved against total incame for the taxyears 2019/20 to 2021/22, using the income of the earliest year first. 2 _—_ Ashura’s total income for the tax year 2019/20 of £10,400 is already covered by her personal allowance so a loss relief clam against this year would use the entire loss but would not resultin any tax saving. KAPLAN PUBLISHING 351 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 399 399 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 YX-UK>: TAXATION (FA2022) (a) Ashura — Taxable income 2022/23 £ Employment income Salary 56,200 Pension contributions Substriptions — Occupational (£56,200 x 5%) — Personal pension — Professional (2,810) 0 (320) — Health club 0 Total Income Loss relief 53,070 (6,525) Net mcome 46,545 Personal allowance (12,570) Taxable income 33,975 a | Tutorial note it The persona! pension scheme contribution does not affect the calculation of taxable income, but wall instead extend Ashura’s basic rote tax band by £3,400. }2 The health club subscription js not en allowable deduction because membership is sot | necessary for Ashura to carry out her duties of employment. 13 The loss relief cop does not apply beceuse Ashura’s trading 'oss is less than the greeter of £50,000 and 25% of her tatel ireorne. | Examiner's report This was the income tax question. It was well answered, and involved a taxpeyer who wos employed and had also commenced self-employment during the tax year (making a trading toss). For part (a), the requirernent was to state two advantages of the taxpayer choasing 5 Agri as an accounting date rather than a date early in the tax year such as 30 April, There were | three obvious advantages, and many candidates correctly explained that the application of | the basi period rules is more straightforward and that there will be no overlap profits. Less | well prepared candidates instead covered the advantages of a 30 April accounting date, so | not surprisingly did not achieve high marks. [Part {b} has been significantly altered so the examiner’s comments for this question are not | relevant, Mowever, the comments from the original version of the question Danh | ("Candidates should be particularly aware of recent tax changes... This is why an annwal | Finance Act update article Is publisned.”) are pertinent; structures and buildings allowances. are an Important new area as they are examinable for both unincorporated traders and _ companies.) 352 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 400 400 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION6 For part (c), candidates had to explain why itwas not benefictal for the taxpayer to claim loss relief under the provisions giving rebef to a loss incurred in the early years of trade. tt should have been fairly obvious that such a clalm would have wasted the personal allowance and not resulted In any tax saving. This section was not as well answered, with many candidates not sppreciating that the floss could only be carried back for three years. Some candidates actually explained whya daim would be beneficial. Part (d) required a calculation of the taxpayer's taxable incorne {on the basis that loss relief was claimed against total income), This section was generally well answered, although many candidates wasted time by calculating the tax Hability, The occupational pension scheme contribution was often grossed up (such contributions are not pald met of tax). Many candidates made things more difficult than they needed to be by attempting this section before section (b), ACCA marking scheme Mork: {8} —- Advantages of basis period Basis brings more straightforward No overiap profits Storter bests period in finet tex year 410 FI] 10 348 Maxim (b) 2.0 Trading toss Decoration expenditure deducted SBA cakulated and deducted Capital aowances deducted ; Integrat Peactures Included i spectal raze pool Laptop included In main poo! Add offset against imegral features then eptop Car in separate column W048. on car 34 35 0.5 05 os 10 oS 45 70 i) Earby pear loss refief ; Relieeed agaist 2019/20 — 2021/22 total income FIFO 10 2019/20 income covercs by PA therefore no tx saving 0 20 4d) Taxable income Satary Pension Subscriptions 0.5 1.0 10 toss 10 Personal allowance 05 448 Total KAPLAN PUBLISHING 16.6 353 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 401 401 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION 125 (FA2022) DEE ZYNE (ADAPTED) ra Welk in the footsteps ofa top tutar Key answer tips | An individual that is employed for part of the tax year, then sets up a business which is initially | boss-making, is a common scenario in examination questons. The calculateon of the adjusted loss was streightforward provided you remembered to time | apportion WDAs in the opening period of sccuurit. Pert {b) required consideration of alternative claims for Dee’s trading foss, which is a common | requirement in loss relief questions and you should therefore make sure that you are well | ptepared for this. The highlighted words in the written sections are key phrases that markers are looking for. Tutor’s top tips in this question, Dee has 5 Aprilas her year end, so the capital cllowances are calculated for | the period ended§ April 2023. tlowever, where a sole trader chooses a different year end, remember that the capital | allowances are aiwoys cakulated for the period of account before matching orofits or losses to tax years. (a) Tax adjusted trading loss- 2022/23 Trading loss E (11,653) Patent royalties (Note) (500) Capital sllawances (V7) (5,477) (17,630) Sa Tutorial note The patent royalties were incurred for trade purposes ond ore therefore deductible in | Computing the tox adjusted trading loss. AS the question says they have not been accounted | for in arriving at the loss given in the aqvestion, they must be adiusted for and will increase the | boss: 354 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 402 402 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATICNAL Working: Capital allowances INSURANCE QUESTIONS: SECTION Main PY car Allowances £ € 6 Pool f Additions (no ALA) Car (between 1 — 50g/krn) Car {> S0g/km) (Note 3} Additions (with ALA) Computer Office famiture AIA (Nate 2) WDA (18% x $/12) WDA (6% x 9/12) [Note 3) TWDV c/f £ 10,400 17,800 1,257 2175 3,432 (3,432) — 3,432 0 {1,404} (801) x 80% 8,996 1,404 641 16,999 Total allowances 5,477 Tutorial note 2 Capitel allowances on purchases of cors ore coiculated bosed on their COy ermissrans. The car with CO; emissions of between 1 ~ 50 grams per kilometre is put in the main pool and is eligible for a writing down allowance at 28%. The car with CO; emissions of > SO groms per kXometre Is a private use car, hos its own column and is efigible for ¢ writing down allowsnee of 6%, The maximum AjA and the WDAs are time apportioned becouse Dee's period of account is only nine manths’ in length. However, the moximum AIA clearly exceeds the fotal qualfying expenditure so all of the expenditure is efigible far relief. Only private use by the owner restricts capital allowances. Privete use of the employee's car therefore does not affect the capital allowance claim, but will instead result in on assessable employment benefit for that employee. KAPLAN PUBLISHING 355 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 403 403 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (b) Alternative uses of trading loss | Tuteor’s top tips When you ure describing use of losses, you must be very specific about exactly what the loss _can be set against, and when. For example, don't just say ‘the loss can be set off inthe current yeor. Specifyin which tax year thet is, and state that the loss cont be set against total income. The examining team have stated that the use of section numbers is not required and Is nor | encouraged at the expense of explaining the relief. * The loss could have Seen chimed 2021/22 and/os 2022/23. . By daiming toss relief agaist against total income for the tax year's) her total mcome [£32,375) for the tax year 2022/23, Dee has relieved the loss entirely at the basic rate of 20% and raduced her income tax liability by £3,526 (£17,630 « 205}. . If the loss is carried back to the tax year 2021/22 when Dee's total income was £80,000, Dee could relieve the loss entirely at the higher rate of 40% and reduced her income tax liability by £7,052 (£17,630 = 40%). « Theloss isincurrad within the first four tax years of trading, so a Claim for special opening year loss relief could have been made against total income for the three tax years 2019/20 to 2021/22, earliest first. ® — As Dee's total income in the tax years 2019/20 to 2021/22 was £80,000, this would also have refeved the loss at the higher rate of 40%, and resulted in an income tax refund of £7,052 (£17,530 = 40%). 126 SAMANTHA FABRIQUE (ADAPTED) ea Walk in the footsteps ofa top tutor | Key answer tips | This ts a losses question that requires you to chocse the best use of the floss. | Given the information about gains it should be fairly obvious that you need to consider 3 | Claim against capita! gains. However, remember that this only saves tax at 10% of 20% (fora _ hagher rate taxpayer} and can only happen after a dasn against total income has been made first in the sare tax year, Be careful te consider the loss rehef restriction which applies to Joss claims against total income other than the profits of the same trade, This restriction did not apply in the question as originally set, as these rules did not exist then, Part (a) should have provided easy marks listing the factors a taxpayer takes into account when deciding what to do with a loss. 356 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 404 404 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS {a} TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Factors Influencing choice of loss relief claims . The rate of income tax or capital gains tax at which rebef will be obtained, with preference being given taincome charged ai the higher rate of 40% or additional rate of 45%, * The timing of the relief obtained, with a claim against total income/chargeable gains of the current tax year or preceding tax year resulting in earlier relief than a claim ageinst future trading profits. ° The extent to which personal allowances, the capitel gains annual exempt amount and the savings and dividend nil rate bands may be wasted Tutor’s top tips As fong as you addressed the factors influencing the choice of reef, not what the relief options are, you shauid have scored well here. {b) Taxable income 2021/22 é 2022/23 £ 2023/24 £ Trading income Interest 71,600 o 17,650 52,100 3,800 1,850 73,700 3,899 13,500 Less: Loss relief — = against trading (no restriction) against other income (restnicted} (0) (21,600) (50,000) 2,100 Less: PA Taxable incorme Taxable gains Chargeable gains (restricted) 3,800 restricted} 0 0 330 2021/22 2022/23 2023/24 £ G £ 22,500 & 53,600 Less: Triding loss relief (10,300) Less: AEA 43,300 (12,300) 0 (wasted) 12,500 {12,300} 31,006 0 200 (200} 31,000 a ° Less: Capital loss b/f Taxzble gains KAPLAN 13,500 (12,570) SUBLISHING 387 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 405 405 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (9 Tutorial note The joss retief in the previous tox yeor against total income is restricted due to the cap an | income tox reliefs, The losses offset against profits from the sare trade are not restricted: | therefore £21,600 of joss can be set against wading income. A further £50,000 of loss reilef {s | available os this is the higher of £50,000 and 25% of total income (£73, 700 x 25% = £18 425). | Although these two claims are betti set off against total income In (he computation, you may i Jind it helpful to separete them out te ensure you relizve the correct amount of loss, | Key answer tips | Where joss questions require you to set off a loss against Income ang gains, make sure that you keep your income tax computation and CGT cormputation separate. This is nat only technically correct, but will also make it easier for you to. see where best to | set off the losses and apply your PA anc AEA, and much easier for the marker to mark your _ answer! The highlighted words are key words or phrases that markers are looking for. Loss metnorandum £ Trading loss in the tax year 2022/23 81,900 Less: Relict against total income current year (no claim as income covered by PA) prior year — tota! claim (0) {72,600} Loss remaining 10,300 tess: Relief against chargeable gains in price year (10,360) Loss carried forward oO Utilisation of losses Trading loss Loss rehef has been claimed: © — against total income for the tax year 2021/22, . then against the chargeable gains of the same tax year. This gives relief et the earllast date and at the highest rates of tax. 358 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 406 406 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Capital loss The capital loss for the tax year 2022/23 is carried forward and chargeable gains for the following tax year. sot against the The use of brought forwerd capital losses is after the annual exempt amount, which avoids wasting any of the annua! exempt amount, The balance of the loss £3,200 (£3,400 ~ £200) Is carried forward against future gains, res v Tutorial note For the tox year 2021/22, f relief is claimed, the personal allowance /s partially wasted (a that year ond the tax saving wil! be at 40% and 20% for income tax and 29% for capital gains. Offsetting losses in the tex year 2022/23 however would utilise £3,800 af the loss, would waste the personal allowance and would not seve any tax. A cloim against totel income must be mode before relief against chargeoble guins can be considered. Carrying al! of the Joss forward would use £11,650 of the loss in the tax year 2023/24 fas could only carry forward against future trading profits from the same trode}, would waste mast of the personal allowance and would save no tox. The taxable income (before toss relief) of £930 represents savings income, All of the savings income fails in the nil rate starting rate bond of £5,090 so no tax would be saved. The remaining loss would not be relieved until subsequent yeors. The optimum reliefis therefore to claim against totol income for the tax year 2022/22, then ogainst the chargeable gains of the sore tax yeor, since this gives relief ot the earliest dete and at the highest rates of tax. Examiner's report This question was generaly not answered well AdUough it was technically the most demanding question im the exam, fequiling a bit more thought than the other four questions, it was quite short and should not have presented too many difficulties for reasonably wel! prepared candidates. In part a} meny candidates explained the loss reliefs that were available rather than the factors that must be taken inte account when deciding which loss reliefs to actually claim, In part (b) it was extremely disappointing to see the vast majority of candidates include the capital gains in their cornputation of taxable income. The capital gains annual exempt amount was often then deducted against the combined figure of taxable income and taxable gains. Many candidates claimed loss relief against the total income for the year of tne loss despite this income Gearly being covered by the personal allowance. Very few candidates, even if they showed the capital gains separately, Caimed loss relief against capital gains, KAPLAN PUBLISHING 3s9 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 407 407 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {FA2022) ACCA marking scheme Rate of tex Timing of retcf Petsenal allowance, onus! exempt Amoust, fil fate bass tb) Trading Income Buliciing society interest Loss reSef against tora! iecome Penonsl allowance Capital gains Loss relief ageirat capital grins Copnal loss carried forward Cxplenetion of most benckicial route Jota 127 MICHAEL AND SEAN iy Walk in the footsteps of a top tutor | Key answer tips Part (a) offered four essy marks to identify the reliefs available for individual savirgs | accounts, pensions, gift aid, business asset disposal relief and capital allowances. | Part (b) was tricky and the hardest part of the whole examination: lt involved opening and | Gosing year losses. | Consideration of the optimum use of the losses was required together with the idemification | of the rates at which tax would be saved. A good Knowledge of the loss sellef rules and a bot | of practice et application pnor to sitting the examination wes needed to score well on this | pert in the time given. | in order tascore well in part (b) computations alone showing the different loss reliefs were | not eriough; explanations of how the reliefs work and advice on the most beneficial course _ of acthon were also needed. The highlighted wards are key words or phrases that markers are looking for. ee 360 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 408 408 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Tutor’s top tips When you need to exnioin how tax policies can encourage individuals to take certain actions, always think about how those actions can save tax for the individual. By opening on (SA, individuals can save income tax on the interest. By saving money in @ pension fund, individuals can save income tox by either reducing their employment income or extending their basic and higher rote bands. By donating money to a charity, the individual can save income tax by either reducing their empioyment income (payroll deduction scheme) or extending their basic and higher rate bands (gift aid donations). When the sole trader buys piont and mochinery he gets capitol allowances that reduce trading profits saving incame tox. {8} Government tax policies 1 Individuals to save Saving is encouraged by offering individuals tax incentives such as tax-free individual savings accounts (ISAs) and tax relief on pension contributions. In addition, the savings Income nil rate bands encourage basic and higher rate taxpayers to save by providing tax-free savings income. 2 individuals to support charities Tharitable support is encouraged by giving individuals tax relie’ on donations made through the gift aid scheme or the payroll deduction scheme. 3 Entrepreneurs to build businesses and invest in plant and machinery Entrepreneurs are encouraged to build their own businesses through various capital gains tax reliefs such as business asset disposal relief. Investment in plant and machinery is encouraged through capital allowances. (b) Michael Tutor’s top tips itis difficult to comment on lass relief by just reading the scenario. Set up the income tax computations for each tax year involved, bringing in the Figures given in The question, This will give o clear picture of the position ond will help to decide on the appropriate reliefs Jor the joss, it will also make It easier to comment on the tax savings ond possible wostoge of the personal allovagnce. KAPLAN PUBLISHING 361 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 409 409 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (F42022) Loss rellef available 1 Special opening year loss relief The joss of £24,600 arising in the tax year 2021/22 (W1) can be claimed against total income for the three preceding tax years, earliest first, since it is incurred in the first four tax years of tracing. Armount of loss claim The loss relief Gaim will therefore be £17,200 In the tax year 2018/19 and £7,400 (£24,600 ~ £17,200) inthe tax year 2019/20, Tax saving For the tax year 2018/19 this will waste Michael's personal allowance, with the balance of the claim of £4,630 (£17,200 — £12,570) (W2) saving income tax at the basic rate of 20%. For the tax year 2019/20 Michael has income of £730 (£51,000 — £12,570 — £37,700) subject to income tax at the higher rate of 40%, so the Gaim of £7,400 will save tax at the higher rate on the first E730. The remaining £6,670 will save tax at 20%. 2 Carry loss forward Alternatively, Michael could have carried the trading loss forward against future trading profits, but the trading profit of £7,100 for the tax year 2022/23 5 less than the personal allowance, and therefore no tax is Saved in that year. There is no information available regarding future trading profits. Most beneficial Claim special opening year loss relief. <2 =| Tutorial note _ Astondard floss retief claim against total income in the tax year of the fess (2021/22) and/or | the preceding tax year (2020/21) is not possible since Michael does not hove any income for either of these years. | Special opening year loss reliefis ane claim for all three years {if there is sufficient toss} or a | FIFO basis, it is not possible to only claim in one year, and it is on ‘oll.or nothing relief fie. | cannot restrict the offset to preserve the persanol allowance). | Note that the limit on the amount of joss reflef that can be deducted from cther income in any tax year does not need to be considered in this question, as the lass is not sufficiently high | for it to be an issue. Workings (W4) Opening year assessments 2021/22 — Actual basis 17,21-S4.22 Loss of £24,600 0 2027/23 — Current year basis Year ended 5.4.23 362 7,100 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 410 410 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 {W2) Taxable income {ignoring loss relief} 2018/29 2019/20 2020/21 2021/22 2022/23 £ E £ £ £ 17,200 51,000 0 0 0 {12,570) {12,570} 0 O 4430 38,430 0 0 Employmentincome Trading income Less: PA Taxable income Basic rate band Taxed at higher rate 0 7,100 (restricted) 6 (37,700) 730 The loss carried back is offset against income before the personal allowance is deducted. This means that £12,570 of the loss each year does not actually save tax as % merely replaces the personal allowance. This working enables you to see how much of the loss actually saves tax and at what rate, Sean Amount of the loss The unused overlap profits brought forward are added to the loss for the year ended 31 December 2022, so the total loss for the tax year 2022/23 is £26,700 {£23,100 + £3,600), Loss rellef available 1 = Terminal joss relief The whole of the loss can be claimed as 3 terminal loss since it is for the final 12 months of trading. The claim ts against trading Income for the tax year of the loss and the three preceding tax years, latest first. Amount of loss daim The terminal loss claim will therefore be £3,700 in the tan ywar 2021/22, £13,900 in 2020/21 end £4,100 (£26,700— £3,700— £18,900} in the tax year 2019/20, Tax saving The property butiness profits are sufficient to utilise Sean’: personal allowance for each year, so the loss relief claims will save income tax at the basic rate of 20%, 2 Standard loss relief against total Income Alternatively, Sean could have initially claimed loss relief against his total income for the tax year(s} 2022/23 and/or 2021/22, but this would have wasted his personal allowance for either or both of thase years. Most beneficial Gaim terminal loss relief. KAPLAN PUBLISHING 365 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 411 411 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION {FA2022) koa Tutorial note A claim against future trading profits is not ovailable since the business is ceasing and @ trading lass can only be carried forward against future trading profits of the same trade. A termine! loss claim fs ageinst trading profits only, on o LIFO bass, and és an ‘ail or nothing’ relief {i.e. cannot restrict the offset to preserve the personal allowance). The terminal loss ts the lass of the last 12 manths of trading. tt s normally colculoted as follows: £ 6 April kefore cessation to the date of cessation Actuol trading loss In this period (£23, 100-« 9/12) Overlap profits nat yet relieved 12 months before cessation to 5 April before cessation Actual trading loss in this period [£23,100 x 3/12) 17,325 3,600 5,775 Termine Joss 26,700 However when the final periad of accountis 12 months long it is unnecessary to prepare this detailed working ond it is aeceotable to take the exomining team’s approach of simply adding the unused overlap profits to the troding loss for the final 12 month period. Examiner's report Part (a) was generally well answered, although candidates should note that where just ane or two marks are avahable for a requirement then just a short sentence is required —not a | detailed explanation. Not surprisingly, part (b) was the section of the exam that caused the most problems. For Michael, the claims should have been fairiy straightforward given that he only has one source of income for each year, However, some candidates were not even. aware that.a daim couki be made against total income. For Sean, a few candidates suggested that the loss be carried forward despite the trade ceasing. In both cases, it was generally not aporeciated that the mast advantageous choice _ of loss relief claims vould generally preserve the benefit of personal allowances. 364 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 412 412 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: i Saving 2 = Chnritable support 3 Guld busitesses: CGT robets Plant and machinery: GAs 6 ; ACCA marking scheme ta} SECTION Marks 2.0 33 if 74) 40 fb) Michael Redef ageinet total income — opening ytor loss rete! Amount of los claims 14 4. Rate of tax saved ~ 2008/29 ww — 2019/20 22 34 Carry forward Sean Avnilsdte loss 10 Terminal fos rehet 34 Amowvt of loss Gaim if Rate of tax saved 35 Redefagsins: total mcome is 11:0 Total 0 PARTNERSHIPS 128 SAM, TAM AND UMA @ Walk in the footsteps of a top tutor Key answer tips Part (a) requires the trading income assessments for three partners, It & necessary to apportion the profits betwees the oartners first and then to apply the relevant basis period rules to each partner. This can be presented in different ways as shown in the answer below. Part (6) requires 3 calculation of each partner’s taxable income. This covers a restricted personal allowance, employment income with pension contributions and benefits and qualifying loan interast. it is necessary to do separate computations for each partner and to set the computations out clearly. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 413 413 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (a) (FA2022) Trading income assessments £ Sam Year ended 20 June 2022 Share of profits (£137,500 < 80%} 110,000 Tam Year enced 30 June 2022 Share of profits (£137,500 « 20%} 27,500 Year ended 30 June 2023 Share of profits (£132,000 x 4/12 x 20%) 8,800 Less: Relief for overlap profits (7,800) 28,500 Uma Yesr enéed 30 June 2023 Shore of profits (£132,000 = 5/32 = 20%) 13,000 <r “ Tutorial note _ An akernative approach would be to separately locate the partnership profits before then applying the basis period rules. This method will be a lot more time consuming and has been | included only to provide clarity and understanding, _ Allocation of partnership profits Year ended 30 Jume 2022 Total £ Year ended 30 lune 2023 4 months to 31 October 2022 £132,000 4/12 | & months to 30 June 2023 £132,000 » 8/22 366 Sam £ tam £ 80% 110,008 Sam £ 8035 35,200 S0% 20% 27,500 Tam £ 2055 8,800 88,000 70,408 G 27,600 232,000 105,608 8.800 17,600 137,500 Total é 44,000 ima £ o 20% KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 414 414 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Sass periods Sam ~ is an on-going partner who has afready been trading for many yeors and therefore the current yeor basis (CYB) wil! apply. In 2022/23 Sam will be assessed on her share of the profits from the year end that fails in the tax year, V/e 30 kine 2022 = £110,000 Tam — is a retiring partner and therefore the closing pear rules will apply. Her final tox year of trade is 2022/23 and therefore all profits, including any profits under the CYB, less unrelieved overlop bought forword wil be assessed by the end of 2022/23. 2022/23. £ 27,500 CYB yfe 30 lune 2022 Cessation period ended 27 October 2022 Less: Overlop 8,800 (7,800) 28,500 Uma — is c new portner and will be assessed on her shore of the profits using the opening year rules. 2022/23 is her first tox yeor of trade and she will be assessed on her share of the profits Jrom the date she commenced trading (1 November 2022) up until the end of the tax year (5 April 2023). 2022/23 1,11.2022 -§.4.2023= § months 5/8 x £17,600 = £11,000 (b) 1 Sam-—Taxable Income 2022/23 £ £ Trading profit/met income Personel allowance Adjusted net income Less: Limit Excess Personal allowance available Taxable incorme KAPLAN PUBLISHING £ 110,000 12,570 110,000 [200,000] 10000 *50% = (5,000) (7,570) 102,430 367 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 415 415 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) Tam = Taxable income 2072/23 £ Trading profit 28,590 Employment svoome Salary (£3,400 = 7) Pension contributions 23,00 Employee (£23,800 « 5%} (2,190) - Employer 0 Car benefit (£36600 = (L6% + 0%) « 7/12 3,416 Beneficial toan 0 Pensions (£3,650 + 11,300) 14,950 69,476 (12,570) Persona! allowance Taxedle income 56,506 ea | Tutarial note There is no 4% surcharge for Tam’s diese! company car becouse it meets the ADEZ standard. There is no taxable benefit in respect of Tom’s interest free loan as it does not exceed the de _ minimis limit of £10,000 at any point during the tax pear. | Employer contributions to en employee's personal er occupational pension schemes ore an | exempt benefit, Urna ~ Taxable income 2022/23 £ Trading profit Director's remuneration Cividend inéorie 11,000 180,000 2,400 Total income 193,400 Less: Quatifying Ioan interest paid (7,100) Net income 197,300 Personal allowance [ANI > £125,140} 0 Taxabie income 368 191,400 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 416 416 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE OU ESTIONS: SECTION 6 Eg Tutoriat note Uma's adjusted net income exceeds £725,140 and therefore her personal allowance will be abated to tera. The interest suffered. on o joan taken out for a qualifying purpose is deductible from total income. A qualifying purpose includes taking out @ loon to invest in.@ partnership in which you ore @ portner. | ACCA marking scheme Marts fa} Trading Incomeassessmems Sam— yfe 30 bow 2022 Tam — wie 20 lane 2022 40 30 ye 3) fone 2023 10 Overlap ne 16 yfe 30 lone 2023. 10 5a (b) Tavabic iocome 2022/23 Sen = trading profit —pertonal alowance OS 2s Tam = trading profit —ealary = employee pension coatriouton os os os —ernedayer pecs coe trite man os Umea ~ cae henaft ts ~ beneficial losn exemot 05 ~ Petes ioe —personal slowonce -—tradngprofit to os Os « Brecter’s remrereration os ~dysend #come ~ Qualitying oan interest onid os oS —petionm! oS Wowance 10.0 Total \ 5.0 — = Examiner's report The income tax question was based around a partnership; with Sar: {80% profit share) and Tam (20% profit share) having been in partnership since 1 July 2008, Tam retiring as a partner on 31 October 2022, and Uma (20% profit share} replacing her as a partner on 1 Novernher 2022. Trading profits were given for the years ended 30 June 2022 and 2023, with Sam and Tam having unused brought forward overlap profits. Part (3) required some care In calculating the partners’ trading income assessments for the tax year 7027/73, The cessation cules apply for Tam, with the commencement rules appikable to Uns; KAPLAN PUBLISHING 369 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 417 417 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) Part (b) was more straightforward, with computations of taxable income required for each partner for the tax year 2022/23. A read through the question should indicate that Sam's personal allowance is restricted, with Uma (who has director's remuneration of £180,000) not benefiting from any personal allowance. Requirement (a) = 5 marks With this type of requirement, candidates need to firstly approciate the relevant basis period rujes (ongoing, cessation or commencernent), and then be very careful with dates. They also need to have weil laid out answers so that their workings can be followed by markers. The model answer shows how this should be done, and itis much better to deal with each of the three partners separately, Headings are essential, Sem Tam— — Her assessment is on a current year basis; so is simply her share (80%) of the partnership profit for the year 30 June 2022: Sam has not ceased trading, 5o her brought forward overlap profits are not deducted, The cessation rules apply to Tam because she left the partnership on 31 October 2022. Therefore, for the tax year 2022/23, she is assessed on her share of the profits for the year ended 32 June 2022 and for the four-month period from 1 July to 31 October 2022 (4/12ths of the trading profit for the year ended 30 June 2023). Tam's unused brought forward overlap profits are then deducted from this figure. Uma — The commencement rules apply to Uma because she joined the partnership on 1 November 2022. For the tax year 2022/23, she ic assessed on her share of the profits for the five-month period from 1 November 2622 to 5 April 2023 (5/12ths of the tracing profit forthe year ended 30 June 2023). Requirement (b) — 10 marks There is an interaction with part (a), becauseit is necessary to bring forward the trading income assessments that have been calculated (even if calculations have been Incorrectly performed). There are three very easy 4 marks for including each of the three figures, so it & essential to make sure figures are consistent across the two requirements. This is where having neatly laid out answers pays off. Sam Sam did not have any other income apart from her partnership trading profit, but & was necessary to restrict her personal allowance. With an 80% profit share, candidates should have managed to calculate a figure in the appropnate income range, and the marks for the personal allowance restriction are then awarded based on the candidate's own Figure. Tem The entire working for Tam can be shownin the one computation. There are twro items where a zero should be shown, and, es already mentioned, deductions should be incduded as negative figures. There are some particular points of note: . With an occupational pension scheme, only the employee's {Tam's} contributions are deducted against employment income, The non-deductibility and non-taxable status of the employer contributions should be indicated by a zero. . There ic no 4% surcharge for Tarn’s diesel company car because it meets the real driving emissions 2 (RDE2) standard. Her company car is therefore taxed on the same basis as 2 petrol company car. , 370 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 418 418 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE ° INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 There Is no texadle benefit in respect of Tam’s interest-free loan because It Goes not exceed the de minimis limit of £10,000 during the tax year. There is no need for a calculation or.an explanation — asst a zero entry in the tex computation, . Both the state pension income and the occupational pension incame received by Tam are taxable, Uma In addition to her partnershio trading profit and director's remuneration, Ume had dividend income of £2,400 and paid interest of £2,100 on 2 personal loan taken out to purchase her share in the partnership Athough the dividend nil rate band of £2,000 wil be available, tha is not relevant to the question because the requirement & just to calculate taxable income. Once again, reading the question carefully, should lead te the interest on the personal loan being deducted rather than being induded as income. The fact that Uma hes director's remuneration of £180,000 js sufficient by itself to establish that no personal allovrance is availsbic, al that is needed is a zero entry. Another general paint over which candidates should take care, is when entering numbers into spreadsheet computations; for example, please be careful not to enter £125,700 when you mean to enter £12,570. 129 AMANDA Key answer tips Part (3) tests the taxable benefit on living accommodation. |t & important to clearly show your workings here for each stage of your calculation, as this will maximize marks Pay close attention to the dates provided — the accommodatian was provided for five months of the tex year, so remember to time apportion your final benefit figure! Part (>) requiresa calculation of Amanda's partnership fos rellef claim, At onty two marks, you de not want to ssend tes longon this section. Part (c} requires a calculation of the income tax and child benefit income tax charge for Amanda, We sre already provided with her income figures at the start of the question, 9 use this as your starting point for both calculations and clearly show all of your workings. Part (d} asks for you to calculate Amanda's overall income tax saving and reduction in child bonefit charge. We know what type of tax payer Amanda and her hushand are at their marginal rates of tax, co that would be the most efficient way to attempt thie part of the question KAPLAN PUBLISHING 371 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 419 419 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (a) Amanda's taxable benefit on living accommodation 6,300 Annual value Additional benefit Cost 10 February 2020 Improvermertts 174.000 8.000 482,000 {75,000) 197,000 Additional benefit (E107,000 at 25¢) Furniture [£12,400 « 20%) 2,140 2,490 10,920 Time apportioned (£30,920 = 3/12) 4,550 a Tutorial note The property was purchased less thon six years before first being provided to Amonds, The | Gdditiona! benefit is therefore based on the cost of the property pus the cost of subsequent | Improvements. {b) Amanda — Share of partnership toss i January 2022 to 28 February 2022 £16,800 = 2/12 = 1/3 i March 2022 to 31 Gecember 2022: E10,800 * LO/12 = 15% 3,350 1,950 372 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 420 420 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 (c} = Armanda = Income tax repayable £ 44,430 Taxabie income £ 37,700.at 20% 800. (£640 « 100/80} at 2036 §,930 {£44,430 — £37,700 — £800) at 40% 7,540 160 2,372. 44,430 income tax lability 10,072 Tax suffered at source - PAYE (900 x 12] (10,800) income tax repayable (728) Qhild benefit income tax charge é Child benefit received Trading income Less: Gross gift ald (€640.« 2100/80} Adjusted net iecome Less: Lower iimit £ 2,636 57,000 (800) 56,700 (50,000) 6,200 1% per £100 of £6,200= 62% Child benefit tax charge = 62% of £2,636 (rounded down if required) {d) 1,634 Cveralisaving £ Amanda tax saving Income tax saving (£2,000 at 40%) Reduction In child benefit income tax charge (£2,636= 205) ‘800 {£2,000/100) Husband tax cost £2,000 x 20% 527 Overall soving KAPLAN PUBLISHING {400) 927 373 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 421 421 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK>: TAXATION (FA2022) ACCA marking scheme Aderks {a) Uving accommodation somal value Additional beretit 05 is Less: limit Additional benefit x OF a5 os Farniturex 20% Tene apportion for months pravided in tax year [b} {ch Lo 10 Aenanda shore of partnership toss January to February 10 Marcas to December 1.0 Income tac Basic rate band 05 Gift ald danation 1.0 PAVE deduction 10 Migher rate band {d) a5 Child benefit charge Overall tax serving 2.0 3.0 Toul 150 Examiner's report The come tax question was based around Amanda.A calculation of her taxable income for the tax year 2022/23 was provided. Details of Amanda's gift aid donations, monthly PAYE deductions and child benefit for the tax year 2022/23 were also given, For the period 1 November 2022 to 5 April 2023, Amanda's employer provided her with iiving accommodation. Amanda wss in parteership with Benny and Cotton. For. the year ended 31 December 2022, the partnership made a tax-adjusted trading loss. The partnership profit sharing ratio changed from 1 March 2022. Although the question was quite well answered, it’s straightforward nature meant that marks could have been higher, Requirement (3)—5 mars Calculate Amanda's taxable benefit tor the tax year 2022/23 In respect of the: living accommodation provided by her employer. Many candidates scored full marks for this section, but for others there were potential problems. One point that only a few candidates picked up ons that all three aspects of the taxable benefit were only available for five months. tt was therefore easier to pro-rata the total benefit by 5/12ths rather than agplying this separately to each aspect. The three aspects of the taxable benefit were: The annual value: Provided candidates realised that this was'a separate benefit, this was an easy half mark. However, some candidates tried to compare the annual valuw to the additional betiefit (teking the towest or highest figure) or applying 20% to the annual value of £6,300. 374 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 422 422 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 An additional benefit: The property was purchased less than shi years before first being provided to Amanda, so this benefit had to be based on the cost of the property (£174,000} plus the cost of subsequent improvements (£8,000). After deducting the £75,000 exemption, the benefit was calculated at the official interest rate of 2%. A number of candidates treated the £8,000 of improvements as o seperate benefit, and others used 20% instead of 2%. Furniture benefit: This wes the aspect most often omitted by candidates, or the cost of the furniture (£12,400) was Included within the calculation of the additional benefit. Candidates need to be careful when /aying out answers of thie nature on a spreadsheet. There were sometimes numerous workings without any clear indication as to which ones the candidate wanted to include within their total taxable benefit figure. Question practice helps immensely in candidates becoming familiar with how to tay out the workings, and it will also iron out many of the problems mentioned above. Requirement (b) —2 marks Calculate Amanda’s partnership loss rellef claim for the tax year 2022/23. This was one of those sections which was either done very well (for full marks), or very badly {generally, for just = half mark). There was a deduction of £3,200 in Amanda’s taxable income cakulation for loss relief and qualifying Interest payments, This figure itself was not relevant to the calculation of Amanda's partnership loss rellef, although tt should heve helped candidates in that their answer obviously had to be less than £3,200, Another point not appreciated by many candidates was that it was only necessary to calculate Amanda‘s share of the £10,800 loss, The shares for Benny and Cotton were not relevant and thelr calculation did not score any marks. With Amanda receiving one-third of profits and losses for two months, and 15% thereafter, the calculation for 2 marks was simply: (£10,800 x 2/12 x 1/3| + (£10,900 x 10/12 «-15%) = £1,950. Requirement (c}—S marks Calculate the income tax and child benefit income tax charge payable by, or repayable to, Amanda for the tax year 2022/23. There were many very good answrers to this section, and It was generally well answered by the majorky of candidates. However, one Issue of concern is that quite a number of candidates initially caleulsted Amanda's taxable incorne, despite this figure being provided. This wasted time and some candidates calculated a different figure fromthe one given. Other problems Inchided: * Not extending the basic rate tax band by the gross charitable gift ald donations of £800 {£640 x 100/80). Sometimes just the net figure was used, but a number of candidates instead deducted the donations in working out taxable income. * Only deducting one month of PAYE rather than 12 months. Disturbingly, some candidates deducted the PAYE from Amunda’s employment against her income tax liability. KAPLAN PUBLISHING income rather than 375 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 423 423 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) . Including the chikd benefit or the child benefit Income tax charge within the calculation of taxable income, or taxing the child benefit income tax charge at the basic or higher rete. Only a minority of candicgates correctly deducted gross charitable gift aid donations when calculating the child benefit income tax charge, and there was often confusion regarding which income figure to use — especially where candidates had attempted their own calculation of taxable Income. | Requirement {d) ~ 3 marks | Caleulate the overall income tax saving and reduction in child benefit income tax charge for “the tax year 2022/23 if the property income of £2,000 had been received by Amanda's husband rather than by Amanda | For the tax year 2022/23, Amanda's husband had a taxable income of £21,000. There were _ two aspects to the tax saving. The first was that Amanda would save income tax at the higher | rate of 40% on the £2,000 of property income, with her husband only taxed at 20%, Answers _ which clearly showed that the saving was at 40% less a cost at 20% (e.g. 2,000x (40% = 20%) = £400) gained the two marks avalable. However, if candidate's answer was just 2,000 = 20% = £400 (without any explanation), then the full marks were not awarded because there was no way of knowing f this was a demonstration of a tax cost or saving or on which number, This underlines why it 'S important to make workings clear. The second aspect was somewhat trickler, so It was rewarding to see many candidates get it right. This was the reduction in Amanda’s child benefit income tax charge because she now had £2,000 less income, Given that the charge is at the rate of 1% per £100 on imome exceeding £50,000, the percentage reduction was 20% (2,000/109). Candidates could either recalculate the charge, or simply work out the reduced charge based on the amount of chid benefit {2,636 x 20% = £527}. 130 AUY MAN AND BIM MEN (ADAPTED) ee Walk in the footsteps of a top tutor | Key answer tips | This question was unusual in that the scenario was a partnership. However, this should not have caused concern as there were many easy marks to be gained, Part (a) may have caused some problems if the definition of residence status had not been learnt, however it was only worth two marks. The rules regarding the definition of residence have been amended since this question was set and are now more complicated, Parts (b) and (c) Involved preparing familiar adjustment of profits and capita! allowances computations, followed by a straightforward allocation of profits between the partners and _ class 4 NIC calculations, | The highlighted words are key words or phrases that markers are looking for. 376 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 424 424 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Tutor’s top tips Remember to read the requirement corefully, This question hos clear mark alfocations, which should be used to aliocete the time spent on each section, Den’t overrun on parts which carry only a few marks The first part required the application of the residence status rules. Note that just stating the rules would not have gained full marks. You must apply the knowledge to the facts of the specific incividunts. {2} Residencestetus . Auy will be treated as resident in the United Kingdom (UK) for the tax year 2022/23 as she was presentin the UK for 290 day: and therefore she meets the first automatic UK residency test (i.e. in the UK for at least 183 days In the tax year]. “ Bim vall be treated as resident in the UK for the tax year 2022/23 as she was previously resident in the UK, was present here for between 92 and 120 days and she meets two of the sufficient ties tests. She has a home in the UK which she makes use of for 100 days during the tax year (the ‘accommodation’ test) and she has spent 90 days or more in the UK during both of the previous tax years (the “cays in UK" test). fa Tutorial note When considering residence it is important to approach g question systematically. You should firstly consider whether the individual meets one of the cutomatic nor-residence tests. However, itis clear that these ore not refevant here os the exomining team has told you in the question thet both individuals are resident in the UK, Secondly, you should consider whether the individual meets one of the automate residence tests, This is the cose for Auy in this question. Finally, if neither of the avtomatic tests ore appitcabie, you should consider how many days the individuol has spent in the UK, whether they were resident in the UK within the previous three fox years, and how meny of the sufficient ties tests are met, The tobie showing the number of ties which must be met is provided in the examination. These rules are now more complex than they were when this question was originally set. KAPLAN PUBLISHING 377 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 425 425 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (b) Tax adjusted trading profit - year ended 5 April 2023 ey Tutor’s top tips | Part (b) gives you clear guidance on the approach that is needed for an adjustment of profits, _ and you should follow this — starting with the met profit and then making the necessary | adjustments. Work through the notes and the plont and machinery information inorder. Ensure you have | dealt with every single item, and shown, as stoted in the requirement, nil in the profits adjustment where an adjustment is not necessary, as marks are given for this. | f pou ore not sure how to. deel with an item. make a sensible assumption and move on, but | do not ignore it, or woste unnecessary time. | Note that es the question hes asked you to ‘calculate’ the adjusted profits you do not need to | expidin goch edjustment that you make, bul you should show any workings. £ Net profit 87,780 Depreciation Entertaining employees {Note 4} 3,400 0 hapropriation of prafit {Note 2) 4,000 12,938 Capital allawances (Vv) 95,280 12,938 {12,938} Tax adysusted trading profit $2,242 3 Tutorial nota I \2 the only exception to the non deductibility of entertainment expenditure is when it ts in respect of employees. Salaries pold too portner are not oVowoble. They merely represent an agreed farm of allocation of the partnership profits in the partnership agreement. Appropriations of profit (Le. drawings such as portner’s salaries) need to be added back to profit. 378 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 426 426 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Allocation of profits — year ended 5 April 2023 Tutor’s top tips Once the tax adjusted trading profit of the partnership has been colculoted, it must be ollocoted between the partners In accordance with the partnership agreement in force in the accounting period. Note thot full morks con be obtatned for this port in showing cleonly how you have allocated the amounts; even if your tox adjusted trading profit figure from part (a) is incorrect, Salary interest (£56,000/£34,000 at S%) Balance (80%/'20%} Total AuyMan 2,800 £ 4,000 1,700 73,742 58,994 14,748 82,242 61,754 20,448 £ 4,000 4,500 é Bim Men Trading income assessments = tax year 2022/23 E Auy Man em Man 51794 20,448 Se Tutorial mote The profit share far each partner must now be assessedin the correct tox year, The basis of assessment rules need to be appNed to determine in which tax yeor the profits are assessed. However, in this question the partnership has a 5 Apri yeor end ang therefore the rule is simple: the actual profits for the year ended 5 April 2023 will be ossessed wn the tox year 2022/23, Working — Capital allowances Tutor’s top tips Astondard capital olfowonces Computation is required: however it is slightly unusual in thot the anly transactions in the yeor involve cars. There ere no other addittans and therefore there is no AIA, The rules for cars need ta be known in detail and applied carefully here. Each of the cars has a different COz emissions rote so these need ta be considered carefully to determine the correct avoWoble copito! allowances. Also watch out for ‘private use’ adjustments. KAPLAN PUBLISHING 379 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 427 427 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) Main pool £ TWDV b/f £ Cara Special rate pool Allowances E £ £ 3,100 = 22,000 Additions (no AlA} Car3 Car4 14,200 11,600 17,300 WDA (28%) §=21,000 11,600 (3,114) WDA (6%) 3,114 (1,260) WDA (6%) Addition (with FYA) Car 2 FYA {100%} x BD% (696) 10,150 {10,150} 1,008 696 » 80% 8,120 i TWDV c/f 14,186 19,742 10,904 Total allowances 12,938 ia Tutorial note I Capita! allowances on cor purchases are calcuioted based on the COsemissions of the car as follows: - New cor with zero CO,emissions: eligible fora FYA of 106% fi.e. Car 2) COjnemissions of between 1-50 groms per kilometre: put in main pool ond eligible for a WDA at 18% (ic, Car 3) CO; emissions of> 50 grams per kiometre: put in special rate poo! and eligible fora WDA at 6% (Le. Car4) However, cars with an element of privmte use by @ portner ‘i.e. owner of the business) ore given o separate column and only the business use percentage of the oliowances con be claimed, Mote thot car2 i a in practice it should down value of £0. business propartion 4 depooled asset os it bos privote use by the owner of the business. be given a separate cokimn and carried forward at a tax written When it is sold it will result In @ boloncing charge, but omy the will he taxed Cor 1, which wos owned at the beginning of tre year, has CO, emissians of > 50 aroms per kilometre and is therefore eligible for o WOA ot 6X. This must then be edjusted for privote vse. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 428 428 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO {c} PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 Class 4 national insurance contributions= 2022/23 Tutor's top tips Straightforward computotions are required for this port, Remember thet full marks con be obtained for this pert, even if your ollecation of profit to the porters is incorrect, rowded that you use the partners’ projit allocations whith you have colculeted in part (b)a the basis of your national insurance calculations. Just make sure that you clearly show the method of calculation, Auy Pan E (£50,270 - €12,570| x 10.25% {£61,794 ~ £50,270] x 3.25% 3,864 375 4,239 Bim Men {£20,448 - €12,570) x 10.25% [ 807 ACCA marking scheme fa} Marks 10 ‘; Any Man Bim Men a0 (0) Tradieg profit Depreciation Craerisining employees cs o5 Appropriation of petit O45 Deductions of capital allowances Os Capite allowances —Mah pool ~Carl 14 i —Specol rete pool =FYA Tracing income assessments Salary 3.3 6 05 interest on copaa io Balerke of profity 0 amo (c) Auy Man 2.0 Sim Men 10 34 Total KAPLAN SUSLISHING 15.0 381 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 429 429 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION 131 (FA2022) DANIEL, FRANCINE AND GREGOR & Walk in the footsteps of o top tutor | Key answer tips This question comprises three separate parts, each retated to a differem area of income tex. Part |a) tests the popular examination topic af basis periods. Part (b} tests the calculation ofa benefical loan benefit. Employment benefits are a good | Opportunity for some easy marks, but care must be taken here as the Wan is made part way | through 2 tax year and the loan is not interest-free. | Part (c) tests trading tosses and you should think carefully before beginning to answer. The | requirement asks you to calculate the remaining toss to carry forward and not net income: _ after toss reset, as you may have been expecting. Tutor’s top tips This question is made up of three seporate scenarios, which could be attempted in any order. | One strategy is to attempt the ports that you ore most confident with first. ensuring you stick to the anprapriate time allocation. Then use the remaining time for the question fo attempt | any parts that you ore less confident about. (a) Daniel — Trading income assessment 2022/23 £ 1 May 2022 to 32 Gctober 2022 (695,000x 1/4 x 6/12} 1 November 2022 to 5 April 2023 12,000 (£280,090 « 1/4 5/12) 18,750 30,750 Ed Tutorial nota | Daniel joined as 9 partner on 1 May 2022, so the commencement refes opply to him for the tox year 2022/23. The basis period is the 12 manth period fran 1 May 2022 to 5 April 2023 _ (using the actual basts). 382 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 430 430 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS {b} TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION & Francine — Beneficial loan Average method £ Loan on 1 August 2022 E 96,000 Loan at end of 2022/23 tax year 110,900 206,006 Average loan (£206,000 = 2) 193,000 Taxable benefit (£103,000 x 236 « 8/12) Less: interest paid {£96,000 « 1.5% x 2/12) (£110,000« 1.5% = 6/12} L373 240 825 (1,565) Taxable benefit 308 Tutor’s top tips it is specifically stated in the question that the beneficial loan benefit should be calculated using the average method, it is important to follow this instruction os calculating an oltemnotive benefit using the precise method wil not score marks and will waste time thot you could use elsewhere. {c} Gregor- loss memorandum £ Loss— 2022/23 68,800 Loss: Set off against total income 2021/22 (W1) Loss; Set off against Catal income 2022/23 (W1) (20,600) (900) Loss: Extended to chargeable gains 2022/23 (W2) 414,500) Loss carried forward KAPLAN PUBLISHING 32,800 383 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 431 431 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Workings (W2) Income tax computations 2021/22 £ 2022/23 £ 14,700 0 Trading income Property income 4,600 8 Interest income 1,200 500 20,600 500 Tatal income Less: Loss relief — current year ~ prior year (900} (20,600) Net Income oO 0 Tutoria} note The property lass of £2,300 in the tox year 2022/23 is carried forward against future property | income. It cannot be offset ogeinst 2022/23 total income nor corried back against any income _ fromthe tex yeor 2022/22. (W2) Trading loss relief against chargeable gains The trading loss relief claim against the chargeable gain > Lower of: @ Chargeable gainless capital loss brought fonvard = {£17,400 — £2,900} = £14,500, and ° Trading loss remaining = |£68,800- £20,600 — £900} = £47,300 Therefore the maximum £14,500. toss that can be offset against chargeable gains is Ed Tutorial note Gregor wishes to relieve his trading loss of £68,800 as early os possible so after e claim against | tatel income is mode in 2022/23,.0 claim against capital gains is mode. The toss reves claim | against the chorgeable gain is restricted by the copitol foss brought forword from 2021/22. 384 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 432 432 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 ACCA marking scheme fa) Nokes Dandel — Trading Income accestrmest 2022/22 1 May 2022 to 3L Cetnbar 2022 LS 1 November 2022 to. 5 April 2023 is 36 (b) Froncine ~ Beneicial loan 2022/23 hererest at official rare (average method} a5 ieherest actually pad 15 34 «) Gregor~ Trading loss carried forward 2021/22 ~ claim against total income ta 2022/23 — claim agarst total ncorne 1.0 2022/23 — dim sponse charge he gars Gos: carried forward P| os 40 Tatal 10.0 PENSIONS AND NIC 132 JOHN BEACH (ADAPTED) ‘ae Walk in the footsteps ofa top tutor Key answer tips Part (a} required the computation of the incarne tax liaditity of an employed individual with several employment benefits and both an occupational and personal pension scheme, Straightforward marks were available for calculating the employment oenefits. The pension scheme contibutions were a litte Wicker and required knowledge of how tax relief is obtained for both types of contribution and the operation of the annual allowance, Inchiding tapering of the allowance for high earners. The NEC computations in part (b) were relatively straightforwarc provided the key facts about national insurance contributions had been learnt. Tutor’s top tips For part (a) o systemotic approach is needed, teking one note of a Lime, ond therefore breaking up the infermation given inte smaller, manageable chunks. Make the marker your friend, if you keep your colculotions clear and easy to read you will score much higher marks. Always ensure your workings arc clearly labedied. ne KAPLAN 0 PUBLISHING rn 0 ne er TE 8 me 0 Oe ns ns 8s https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 433 433 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (a) Income tax computation — 2022/23 £ 234,000 1,425 Director's remunerstion Mileage allowance (Wi) 235,425 Occupational pension contributions (Note 1) (28,000) 207,425 Benefical ican (W2} Long service eward {gold watch) ~ exempt 530 u Tota income * Net income Less: PA (AN) > £125, 140) 207,955 (n) Taxable income 207,955 Income tax £ £ 38,223 = 20% (W4} 7,645 112,300 * 40% 44,920 150,523 $7,432 x a5% 25,844 207,955 Income tax liability | 738,409 isd | Tutorial note t Tax relief for contributions to eccupational pension schemes is given by deduction fram employment income. Contributions mode by an employer are an exempt employment benefit. 2 Long service ewords are exempt where there has been at east 20 years af service by the employee and where the cost 1s £50 or less for each pear of service, (3 386 As ANI £207,955 — 523 = £207,432} is greater than £125, 140 the PA Js reduced tp nil, KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 434 434 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND HATIONAL INSURANCE QUESTIONS: SECTION f Workings (Wi) Mileage allowance Arrount received by John (5,960 miles x 60p) Less: Approved miieage allowance (4,270 + 520} « 45p E 3,576 (2,453) Taxabie benefit 1,425 =“ Tutorial note Trave! between home ond office |s ordinary commuting which does not quollfy for tox relic. {W2) Beneficial loan John repaid £24,000 (£12,000 + £12,000} of the loen during the tax year so the outstanding balance at 5 April 2023 is £60,000 {£84,000— £24,000), Tutor’s fop tips The question stotes thot the average methodi used to culculote the taxable benefit, so do not waste time alse preparing calculations using the precise for accurate) method which will HOLE MO MOCKS. The benefit calculated using the average method is: £ (£84,000 + £50,000) = 2) x 2% KAPLAN 1,440 Less: Interest paid |910) Taxable benefit 530 PUBLISHING 387 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 435 435 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (W3} Personal pension contributions Tutor’s top tips You must compare the amount of personal pension contributions paid by John in the tox year with the ovailable annual allowance. Read the question carefully as this provides some hints | on how to approach rhe calculation, | Remember that ALL contributions count towards the avoilabte annual aNowance, Once you | have calculated the available annual alfowance for the tax year 2022,'23, you will need to consider the unused allowances from the three prior tax years. The annual otowance for the tax year 2022/23 is subject to topering as John's adjusted income (net income plus employee's occupational penston contributions and employer’s contributions) | of £207,955 + £28, 000 + £17,000= £246,955 is above the income timit of £240,000. £ 40,000 (3,477) Annual allowance - 2022/23 Loss: SO% x (£246,955 — £240,000} — £ 36,523 Unused allowances b/f from previews three tax years: (Per Q £1,000 x 3) 3,000 Meximum annual alowance for the tax year 2022/23 Less’ 39,523 Employee occupational scheme contributions Employer occupational scheme contributions (28,000) (11,000) Remaining avalleble annual allowance = PPCs made 523 = ee Tutorial note lt Goth employee allowance, and empfoyer pension cantributions count. towords the annua! |2 Unused annual allowances con be carried forward for three years. 3 The annual allowance is the muaxinunr grass amount that con be contributed into pension schemes ino tax year without incurring an annual allowance charge. Tire £523is therefore the gross amount of contributions made by Jahn Into the personal pensian scheme, 4 Higher and additional rate tax relief for personal pension scheme contributions is given by the extension of the bosic and higher rate tax bands (W4), 15 338 Remember thot the PPOs clso offect John's odjusted net income (ANI) for the purposes of cofeulating the PA available. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 436 436 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE {W4) INCOME TAX AND NATIONAL INSURANCE SECTION 6 Extension of basic and additional rate bands Basic rate band threshoks Plus: Gross PPCs{W3) Extended basic and additional rate bands- {(b} QUESTIONS: Basic Additional rate rate £ £ 37,700 150,000 523 523 38,223 190,523 National Insurance contributions ~ 2022/23 Tutor's top tips You ure usked to cuiculute the class 1 national insurance contributions payable by both Joti Beach ond Surf pic, Make sure you present your answer se thot it is clear witch contributions ore paid by whom. John Beach . Glass i employee's primary NICs payable: Cash earnings = {£224,000 salary + £1,425 mileage allowance) = £235,425 (£50,270- £12,570) 13.25% (£235,425- £50,270) x 3.25% £ 4,995 6,018 11,013 ©. a; Tutorial note Class 2 Ni€s are assessed on cosh earnings without ony allowable deductions. Accordingly pension contributions ore not deductible and non-cash benefits ore not subject to class 1 NICS, Note that the toxoble mileage allowance paid in respect of hame to office travel is cash earnings and is subject to class 7 NIC, | Surfple . Gass 1 emoloyer’s secondary NICs payable; Aisa payable on cash earnings of £235,425. (€235,425 ~ £9,100) « 15.05% KAPLAN BUSLISHING 34,062 389 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 437 437 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) | Examiner's report | Part [a) was generally very well answered, and the only aspect that caused prodlems was the | calaulation of the personal pension contributions. A common mistake was to gross up the | contributions. , | Part [b) was well answered by the majority of candidates. | Note: The examiner's report has been edited to remove comments an elements of the question that have been deleted due to changes to the exam format. = [a) ACCA marking scheme Dyector’s remuneration Melcage showarce recetved se Marks os Os Aperoved mileage alowance 10 Tecate bent on mileage Cccupational pension comtrRitions as 19 Outstanding bslence on joan Lown interest ac offixisl rte 19 190 Interest pried Long service award Personal allowarce as as os Income tax lizoeity 1s Unuerd annual allowance for 2022/23 LS Tote! avaiable annual aliowance 190 fotention of basic and heher race bards 10 1a (d} Employee cims t NIC 20 Employer dass 1 NIC 10 30 Total 15.0 133 ANN, BASIL AND CHLOE (ADAPTED) @ Walk in the footsteps of a top tutor | Key answer tips This question covers the pension relief available to three different individuals. This should be a steaightforward question provided the rules had been learnt. | Relief for sansion contributions is a key ares of the syllabus that is tested regularly, _ Note that this question has been adapted in light of the new syllabus and part (b) is a new _ addition ta the question to test the annual allowance rules introduced in the pension legislation since the date of the sitting when this examination question wes set. | The highlighted words are key words or phrases that markers sre looking for. 390 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 438 438 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 Tutor's top tips This question ix classic in style with individuals in different situntinns contributing to a personal pension scheme. The key fs to; . Rermnember the definition of ‘relevant earnings” . Cornpare the gross contributions paid with the ‘relevant earnings’ (or £3,600 if this is iigher} to decide the maximum tax aliawable amount « Consider the ennual okowance limit charge and tapering where necessary, Note that the moximum contribution allowable for a person without ony relevant earnings in the tax year (£3,600) and the annua! ollowance limit are given in the examination, {a} 1 Ann Peach Amount of pension contributions qualifying for retief Ann can obtain ¢efief for the lower of: 4 Gress contributions of £42,000 2 Higher of. (i) £3,600 (i) Relevant earnings of £33,650 Therefore, £38,650 qualities for tax relief, Her taxable income tals below the basic rate band even before extension due to pension contributions; therefore her income ts taxed at 20%. Income tax liability & Tracing profit Less: PA Taxable inpome Income tax ability (£26,080 x 20%) KAPLAN PUBLISHING 38,650 (32,870) 26,080 5,216 391 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 439 439 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) 9 Tutorial note The annua ollowance charge is not applicable to Ann, as although she hos made pension contributions in excess of £40,009, she hes only received tax relief for cantributians of , £38,650. The annual allowance charge is intended to claw back tox relief for contributions in 2 Basil Phim Amount of pension contributions qualifying for relief Basil can obtain relief for the bower of: 1 Gross contributions of £40,000 2 Hogher of: () £3,400 {i} Relevant earnings of £242,000 Therefore, £40,000 will quaify for tax relief and his basic rate band and higher rate bands are extended to £77,700 and £190,006 {W/2} id Tutorial note | Note that this scenoria differs from the treatment for Aan {ebove) a3 Ane hod contributed | more than 109% of her relevant earnings Into a scheme, whereas Basil has contributed fess | than 100% of his relevant earnings into the scheme. Income tax Hability £ Employment income 242.000 Less: PA {ANI > £125,140) 0 Taxable income 742,000 Income bax; é 77,700 £ * 20% {W2} 15:540 122,306 x 40% SZ.00 44,920 x 45% 23,400 247,10 Inwormy tax lisbality 392 83,360 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 440 440 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 Workings (W1)} Extension of basic rate band (W2) £ £ Basic/higher rate band Pius: Gross PPC 37,700 90,000 150,000 40,000, Extended basic/higher rate band 77,700 196,000 Annua! allowance £ £ Net income Adc: Employer's pension contributions 242,000 5,000 Adjusted incorne 247,000 Annual allowance — 2022/23 40,006 Less: 50% » (£247,000 -— £240,000} 43,500) 35,590 Unused AA b/f from previous three tex years: 2020/21 and 2021/22 (£40,000 — £40,000} « 2) o 2019/20 {£40,000 - £30,000) 10,000 Maximum annual elowance for 2022/23 Basil's gross contributions of £40,000 46,500 cornbined with his employer's contributions of £5,000 are within the svailable annual allowance. Basil will rot be subject to an annual sllowance charge =“y' Tutorial note Bosil’s adjusted income for the purposes of tapering the annuol oflowonce for the tax year 2022/23 exceeds £240,000. His allowance is resuced by £1 for every £2 of adjusted income in excess of £246,000, His net income (£242,000 —£140,000} plus personal pension contributions in the tax yeors prior ta 2022/23 did not exceed £240,000 so the avollable annual alinwance meach yearis £40,000. KAPLAN PUBLISHING 393 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 441 441 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) 3 Chice Pear Amount of pension contributions qualifying for relief Property income does not qualify as relevant earings {unless it relates to qualifying furnished holiday accommadation). Therefore, as Chloe has no relevant earnings, she will only receive tax relief on £3,600 of her pension contributions. Her taxable income falls below the basic rate banc even before extension due to pension contributions; therefore her income Is taxed at 20%. Income tax lability £ Property Income 24,550 Lass: PA (12,570) Taxable income 11,980 Income tax {£11,980 x 20%) 2,396 () = Tax implications of Banana Bank pic contributing into Basil's pension fund if Basil's employer contributes into his personal pension scheme, the employer contributions are: . a tax free benefit * a tax silowable- deduction in Banana Bank plc's corporation tax computation * combined with Basil's contributions and compared to the available annual allowarice in the tax years 2019/20 to 2022/23. Where the annual allowance is exceededa tax charge Is levied on the individual. (H) = mpiications for Basil’s available annual allowance of Banana Bank pic contributing £100,000 Into Basil’s pension fund The annual allowance of £40,000 Is tapered where the individuals adjusted income is greater than £240,000, subject to a minimum of £4,000 where adjusted income is £240,000 or more, Basil's adjusted Income would now be £342,000 (£242,000 + £100,000) stich thet his annual allowance for 2022/23 would be reduced to the minimum amount of £4,000. Examiner's report This question was reasonably well answered, although there were few first-rate answers. For the second taxpayer the basic rate band was often extended by the amount of annual allowance rather than the contributions. Very few candidates stated that the third taxpayer would have received tax relief up to £3,600 of her contributions, Note: This quastion has been adapted in light of the new syllabus and part (b) & 3 new addition to the question. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 442 442 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE OU ESTIONS: SECTION 6 ACCA marking scheme Morks fa) Ann Peach Taashle mecame 05 Income tas Amourt quabitying for tax rele Os ta 24 Basi Plum Tasable ircome Persoral allowance Os 24 Extension of basic rate Gand 20 Income tax Amount quotitying for tax relief 35 34 64 Ono Pear Taxable income 05 Income tax os Amour aualitying for tax relief i 2H (b) Employer contributions Tax free Dene os Tax allowable deccting for comaratian tax La Combinexi with Giast’s comributions re annual allowance (Aa) 05 Urersed AG byl & poor IPantusal dlowance eeceoded tar charge leded 6.5 0.5 A tepered to minenum of £4,000 10 Adjusted met income now £562,009 340 $a ‘Total 5.0 | 134 ee el JACK (ADAPTED) ra 2 Wolk in the footsteps of a top tutor Key answer tips This question is really three separate questions. Requirements (a) and (c) are straightforward, whereas requirement [b} & a bit tricky, sc you may want to leave this part.until st. Part (} required basic inheritonce tax planning knowledge but in a written context. Don't forget you may seed to explain tax implications in the examination as well as calculate them! Part (b) required a good understanding of tax relief for pension contributions and the avallability of the annual allowance. The anoual allowance Is included In the tax rates and abowances provided to you in the examination. Part {bifii) in particular was tricky but remember it is only worth one mark — havea quick go and move on! Part [c) required basic tax planing in relation to ISAs. The maximum investment per tax year is Included in the tax rates and allowances provided to you in the examination. KAPLAN PUBLISHING 395 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 443 443 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (a) The aift will be a chargeable Mifetime transfer of £294,CO00 (£300,000 less annual exemptions of £3,000 for the tax years 2022/22 and 2021/22}, No lifetime inheritance tax will be payable because this is fess than the nil rate band of £325,000, and If Jack survives for seven years, there will also be no Inheritance tax Liability on Jack's death, The value of Jack's estate will therefore be reduced by £300,000, which will mean an eventual inheritance tax saving of £120,000 (£300,009 at 404), 54a Tutorial note | Although no (HT will be payable on Jack’s gift to a trust due to the availability of his nil rate band, the chargeable amount af £294,000 will have to be taken inta account when calculating the nil rate bond available to set against any further chargeable lifetime transfers {i.c. gifts to trusts) which are be made within the following seven years. (bo) @ 2 For the tax year 2022/23, £43,730 (W1) of jack's income is currancy taxable at the higher rate of income tax. 2 This is jess than the available annual allowances of £136,000 (W2) for the tax year.2922/23. 3 Restricting the amaunt of personal pension contributions to the amount qualifying for tax relief at the higher rate will minimise the cos: of pension saving because each £100 saved will effectively only cost £60 (£100 less 40% tax relief), (W1) Amount of income subject to tax st the higher rate £ Net income less: Personal allowance 100,000 {12,570} Taxable Income 87 AI8 less: Basic rate band (£37,700 + (E500 x 125) {43,700) Amount of income falling in the higher rate band 396 KAPLAN 43,730 PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 444 444 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME (W2) TAX AND NATIONAL INSURANCE QUESTIONS: SECTION & Amount of ancual allowance available £ Annual! allowance 2022/23 40,090 Brought forward allowences: 2023/22 40.020 2020/21 40.000 2019/20 40,020 Total available allowances 150,000 Less: Contributions made (E500 = 12» 4) (24,030) Remaining alowance for 2022/23 contributions 136,030 ia Tutorial note Unused annual allowances can be carned forword for up to three years. ft wasn’t necessary to restrict Jack's onnval allowonce as his adjusted income is $ £240,000. Athough Jack's opprocch to nension saving will maximise the available tax relief, It will mean that some carried forward onnual allowances ore wasted. {li) Jack will have unused allowances of £34,000 {£40,000 ~ £6,000) from bath of the tax years 2020/21 and 2021/22 to carry forward to 2023/24, so total allowances of £68 000 {£34,000 « 2). KAPLAN PUBLISHING 397 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 445 445 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) ee Tutoria/ note This requirement was only worth one mork so the examining team were expecting you to build on your calculations fram the previous part and use your technical knowledge of how | brought forward annual allowances are utilised. A proof of the answer fs as follows: | Remaining allowance for 2022/23 coritrituetions Less: £136,050 Additional contribution In 2022/23 (£43,738) | Less: Unused 2029/20 allowance no longer c/f Remaining aliowance {£40,000-£6,000) £34,000 Utliited by additional contribution (£43,730 — £34,000") (£9, 730) {£24,270} Allowance remaining to carry forward ta 2023/24 £68,000 | * £34,000 of the additione! contribution will utilise the remaining aloweornce from the current year (2022/23). The remaining £9,730 of the additional contribution will utilise the unused _ allowance carried forward from 2029/20. The unused allowances from the tax years 2020/21 _ and 2021/22 are not needed to allow tax relief on the cdsitional contribution ond ore corried | forward to 2023/24, (c) Jeck can invest in an ISA for the tax year 2022/23 until 5 April 2023, and another ISA for the tax year 2023/24 between 6 April 2023 and 5 April 2024. The maximum possible amount which he can invest into stocks and shares ISAs curing the next 30 days is therefore £40,000 (£20,000 x 2) | Examiner's report | This question proved difficult for mary candidates, with same aspects consistently causing _ problers. | AS regards part (a}, long, detailed, computations were often provided when the answer was quite straightlorward. For example, the gift would have reduced the taxpayer's death estate | Dy £300,000, so the inheritance tax saving was simply £120,000 (£300,000 at 40%). There | was no need for before and after computations As regards pert |b), few candidates appreciated that restricting the amount of personal | pension contributions to the amount qualifying for tax relief at the higher rate minimises the | cost of parision saving because each £100 saved effectively only costs £60 (E100 less 40% tax relief]. _ As regards part [c), very few candidates realised that the 30 day periad fell into two tax years, | $9 the taxpayer could invest £20,000 by S April 2023, and then another £20,000 on or after | 6 April 2023. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 446 446 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 ACCA marking scheme i Marks tot feherkance tax Chargeabic liictine tronster 1.0 beheritance tak 1.0 Vatoe of estate 1.0 30 fb) Pension comtribations i) (eco at higher rete Armad aBowences at C40,000- 16.000 each year byl Gancdusion 5 15 0 4.0 CO — \irexsexd atowances 2UMV2Z1 --2022/93 9 10 A fiming 1.0 Umk 190 «2 2.0 Total 10.0 SELF-ASSESSMENT 135 PICASSO (ADAPTED) Key answer tips The first part of requirement {a) of this question involves detailed calculations to work out the income tax, class 4 NICs and CGT payable under self-assessment and when the payments are due The remaining two parts. require wholly written answers on two common self-assessment topics. These are marks which are easy te gain if you have don= your work, but easy to lose if you do not invest the time in learning the self-assessment rules. Part (a) 3 of the original question has been changed and part 4 has been deleted to reflect charges to the structure of the examination. Part [b) is 3 new part that has been added to the original question to test the implications for tex planning for married couples of the savings and dividend income nil rate bands. The highlighted words are key words or phrases that markers are looking for. KAPLAN PUBLISHING 399 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 447 447 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) {a 41 Owe dates of payment of tax under self-assessment Due date Tax year Payment 31 July 2022 2021/22 Second paymentonaccount(W1) 2,240 _—Balancing payment (W2) 6,139 34 January 2023 © 2021/22 E Sl January 2023. «2022/23 ~——s First payment on account (W3) 1,860 31 July 2023 2022/23 =—-1,860 Second paymenton account (W3) Si January 2024 = =—62022/23 = Balancing payment (W4) S31 January 2024 = 8=62023/24 Ss First payment on account (WS) 164 1,960 Workings (W1)} Second payment on account— 2021/22 The second payment on account for the tax year 2021/22 is based on Pi’s income tax and class4 NIC Bability for the previous tax year as follows: é Incosne tax 3,240 Class 4 Nits 1,240 4,480 Payments on account (5034) (W2) 2,240 Balancing payment — 2021/22 £ Income tax 4,100 Class 4 NICs 1,480 Class 2 Ni€s 159 Capital gains tax {see Tutorial Note) 4,880 10,619 Lesx POAs (£2,240x 2] falancing payment (4,480) 6,139 (W3) Payments on account — 2022/23 Pi will make a claim to reduce her total payments on account for the tax year 2022/23 as follows: Income tax soi Class 4 NICs 990 3720 Payments on account (5036) 400 [860 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 448 448 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE {W4) INCOME TAX AND NATICNAL INSURANCE QUESTIONS: SECTION 6 Balancing payment — 2022/23 Income tax and class 4 NICs E 3,720 Class 2 NICs Capital gains tax 164 0o 3,834 Loss; POAs (£1,860 x 2} (3,720) Balancing payment {WS} 164 First payments on account - 2023/24 The first payment on account for the tax year 2023/24 is based on Fis income tax and class 4 NIC liability for the previous tax year as follows: £ Income tex 2,730 Class 4 NICS 990 3,720 Payments on account (S0%) 1,860 ot el Tutorial note Ciaas 2 NICs and capital gains tax are collected via self-assessment and are payable all in ane poyment on 31 January following the end of the tox year aiong with the balancing payment | for income tax and closs 4 Nis. Payments on account ore not required for class 2 NICs and CGT. 2 3 Reduction of payments on account to £0 ° |? Pi's payments on account for the tax year 2022/23 were reduced to £0, then she would be cherged late payment imerest on tie peyrnents due of £1,860 from the relevant due date to the date of payment. ° A penalty will be charged if the claim to reduce the payments on account to £0 was made fraudulently or negligently. Gaim to reduce payment on accounts © Fi must submit a claim to reduce her payments on account for the tax year 2022/73 by 31 January 2024 (i.e. by 31 Janwary following tne tax year}. KAPLAN PUBLISHING 401 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 449 449 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK: TAXATION (b) (FA2022) Turner and Andrea tax savings ® Turner is an additional rate taxpayer in the tax year 2022/23, Therefore he does not have any savings nil rate band and has peid tax on his interest income at 55%. * © Andrea is a basic rate taxpayer iin the tax year 2022/23. She did not use her savings ni rate band of £1,000 but had dividend income in excess of her £2,000 dividend nil rate bend, She paid tax at 8.75% on the dividend income above £2,000, = The total tac lability for the tax year 2022/23 would have been reduced If; — Turner had transferred all of his interest income to Andrea, This would have utillsed her savings nil rete band and the balance of the interest would have been texed at 20% Instead of 45% — Andres had transferred £2,000 of dividend income to Turner to utilise his dividend nfl rate band = The total tax saving would have been: £ Interest income £1,000 » 45% Interest income £4,000 x 25% (45% — 20%} Olvidend Income £2,000 x 8.75% 450 1,000 175 1,625 Examiner's report This question was generally not well answered, and the impression given was that candidates hed struggled with time management and had a lack of time remaining for this question, Part (a)(4) caused the most problems, with the vast majority of candidates not being able to demonstrate how payments are calculated and paid under the self-assessment system. In part {a)[2) most candidates appreciated that Interest would be due, but very few mentioned the potential penalty that could be charged. Note: The examiner's report has been odited ta remove comments on elements of the question that have been deleted due to changes to the examination format. Note that part (b) was not in the original question, 402 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 450 450 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIGNAL INSURANCE QUESTIONS: SECTION 6 ACCA marking scheme Marks tot L Second paymant on pecount for 2021/22 Bsbrong payment For 2021/22 Clair) te reduce payrhents on account Payments on accoemt for 2022/28 fale cayrem for 2022/23 First payment om accouns for 2023/24 +5 20 14 34 o5 ia 7a 2 interest Penalty 10 Ww 28 3 (b) Clam date 518 Turner adsitional (ate laapayer No savings nil rate bang 05 Os Andres basic rete taxpayer O5 Ureced cavings cil tate hand £9,000 o5 Dividends excoad £7,000 ril rate bare a5 Transferall everest iecame to Andrea Trevsfer £2,000 dividends to Turner 0.5 os Calcu*ation of tax saving a 528 Total 136 ERNEST VADER (ADAPTED) re 15.0 Wali in the footsteps of a top tutor Key answer tips This is an unusual and tricky question requiring substantial written explanations statements about ethical ssues and self-assessment. and Detailed knowledge is required to score highly on this question; however the application of sore basic common sense would aise gain quite a fee marks. The highlighted words are key words of phrases that markers are looking for, The legisiation regarding the ganeral anti-abuse rule and dishonest conduct by tax agents did not exist when this question was first written, and have been added since to test these areas, The original part (c) tested HMRC’s information powers, which are no longer in the syllabus and this pert has therefore been removed. Part {d) has been amended to reflect changes to the examination structure. KAPLAN SUSLISHING 403 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 451 451 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Tutor’s top tips Remember to read the requirement carefully ond ollocate the time spent on ech section. Part (a) covers the classic topic of tax evasion and tax ovoldance, but care must be taken to _ apply your knawiedge ta Ernest's particular problem. This part also tests awareness of the | genera! onti-abuse rufe. Port (b) requires the application of common sense if the specific guidelines have not been | arnt, | Parts (c} and {d) are straightforward if the self-assessment rules have been leornt, difficult if not learnt. (a) Tax evasion and tax avoidance . Tax evasion is egal and involves the reduction of tax liabilties by not providing information to which HMAC is entitled, or deliberately providing HMRC with false information. . In contrast, tax avoidance involves the minimisation of tax liabilities by the use of any lawful means, However, certain tax avoidance schemes must be disclosed to HMIRC, . The general anti-abuse rule ts a rule to counter artificial end abusive schemes where arrangements (which cannot be regarded as a reasonable course of . H Ernest makes oo disclosure of the capital gain then this will be viewed as tax evasion as his tax liability for the tax year 2022/23 wil! be understated by ation) are put in place deliberately to avoid tax. £18,000. (b) Failure to disclose information to HMRC . How to deal with the failure to disclase is a matter of professional judgement, and 3 trainee Chartered Cerified Accountant would be expected to act honestly and with integrity. . Ernest should therefore be advised to disclose details of the capital gain to HMRC, * if such disclosure is not made by Ernest, you would be obliged to report under the money laundering regulations, and you should also consider ceasing to act for Ernest. . (c) (dc) In these circurristances you would be advised to notify HMRC that you no langer act for him a®hough you should not provide any reason for this. Penalties for tax agent . A civil penalty may be payable by the firm if they have engaged in dishonest * conduct, which may be the case if they have failed to supply the information HMAC have requested, The potential penalty is up to £50,000. Interest payable e Late peyment interest will run from the due date of 31 lanuary 2024 to the payment cate of 31 July 2024. 404 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 452 452 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION6 Examiner's report This question was not well answered, with many candidates attempting it as them final Question or omitting it altogether. This was disappointing given that several sections covered recent fax management changes which have been covered in my Finance Act articles, In part (a) most candidates knew the difference between tax evasion and tax avoidance, but many failed te score an easy mark by not stating that the taxpayer's actions would be viewed as tax evasion. Part (b) caused problems for most: candidates but a common sense approach would have gained most of the available marks. Unfortunately, far too many candidates instead just incorrectly explained that it would be necessary to inform HMAC themselves, Note: The examiner's comments on the original parts (c) and |d} have been deleted as they are no honger relevent to the amended question, ACCA marking scheme fa) Tax evasion Morks Lo Tax avoklance General acti-abine rule 1a 14 Non-dkciosure of disposal 10 49 db} Professional judgement os Advise disdosure 14 Repart under Money Lausdering Regulations OS Cease to act and inform HMIRE that ceased 19 aa {) CMI penatty for cikhoanest conduct 10 £50,005 penalty 19 {d)—_brterest period Total KAPLAN PUBLISHING 20 we 300 405 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 453 453 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 YX-UK: TAXATION (FA2022) 137 SOPHIE SHAPE (ADAPTED) ra 3 Walk in the footsteps of a top tutor o Key answer tips Occasionally the examining team do include a section C question solely testing administration aspects of taxation such as this 10 mark personal tax question Parts (a) and [b) test the popular examination topic of payments on account. Part (c) tests tax retum due dates for 1 mark. Part {d} tests compliance checks. Provided you have straightorward. (a) revised the administration chapter, this question should be Schedule of tax payments Due date 31 July 2023 Tax year 2022/23 Payment Second peyment on account E £7,060 (€5,240+ £1,820) * 50% 3iJanuary 2024 =. 2022/23 3,530 Balancing payment £33,451 (£6,100 + £1,910 + £1649 + £5,277) = £7,060 (£3,530 x 2) SL January 2024 2023/24 6,391 First payment on eccount £8,010 (66, 100+ £1,160) x 50% 4,005 ted Tutorial note ft The secand payment on account far the tax year 2022/23 is based an Sophie's income tox and class 4 MWC Nability for the previous tox year. 2. The dbalanang payment for the tax ycar 2022/23 includes the class 2 NIC and capital gains tox liabilities for thet yecr. The first poyment on account for the tax year 2023/24 is based on Sophie's income tax ond class 4 NIC liabilities for the previous tax year. (b) Reduction of payments on account If Sophie's payments on account for the tax year 2022/23 were reduced to £0, then she would be charged interest on the payments due of £3,530 from the relevaet due date to the cate of payment. A tax geared penalty will be charged as the claim to reduce the payments on account to £0 would appear to be made fraudulently or negiigemtly. {c) Filing a paper tax return Uniess the notice to file @ return is issued lste, the latest date when Sophie canfile a paper self-assessment tax return for the tax year 2022/23 is 31 October 2023. 406 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 454 454 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INCOME TAX AND NATIONAL INSURANCE QUESTIONS: SECTION 6 {d} Compllance check i HA Revenue and Customs (HMRC) intend to carry out a compliance check into Sophie's 2022/23 tax return they will have to notify her within 12 months of the date when they receive the return. HMIRC has the right to carry out s compliance check os regerds the completeness and accuracy of any return, and such a check may be made on a completely random basis. However, compliance checks are generally carried out because of a suspicion that income has been undeclared or because deductions have been incorrectly claimed. For example, where accounting ratios are out-of line with industry harms. KAPLAN PUBLISHING 407 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 455 455 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION (FA2022) 408 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 456 456 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 Section 7 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS PRACTICE SECTION A OBJECTIVE TEST QUESTIONS INDIVIDUALS — CAPITAL GAINS TAX 138 BandF Qualifying corporate bonds, gilt-edged securities, a main residence (which has always been lived in by the owner) and ail cars (regardless of any business use), are all exempt from CGT. A painting is a non-wasting chattel. A non-wasting chattel isa chargeable asset unless it is bought and sold for less than £6,000 which is unlikely to be the case for a pairtting by 2 famous artist. Assets used in the trade are still chargeable assets and will potentially realise = chargeable gain if they are sold at a profit. The wasting chattel rules do not apply to assets on which capital allowances have been claimed. 139 A Examiner's report This question examines exempt gifts for capital gains tax purposes. The correct answer Is A, gift of a motor boat valued at £10,000 [cost £5,000) to his aunt: This is an exempt gift because it is a wasting chattel (i.e. 3 tangible, movable asset with an expected life not exceading 50 years. Wasting chattels (other than those eligible for capital allwances) are always treated as exempt disposals. The value and original cost are irrelevant. Answer option B was the most commonly chosen, suggesting that candidates may not have known the special rules regarding chattels well enough. KAPLAN PUBLISHING 405 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 457 457 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 140 B £ 338,500 {150,000} Sale proceeds Less: Cost Chargeable gain 188,500 Less; AEA (12,300) Taxable gains. 176,200 Capital gains tex liability (£176,200 x 289¢) ' 49,336 ~ ' Tutorial note | | | | | Lexie hes taxable income of £54,000 and is therefore a higher rate toxpayer. Mer capital gains will therefore be subsect to the higher tox rete for residential properties of 22%, Remember thet higher rates of CGT oppiy when you are toxing a gam in relation to a residenticl propery. Apoyment.on account wii have been made in respect of the residentiol property 62 days after the disposal, ond this would be deducted from the capital gains tax liebility at the end of the year. However, this question asks for the tata! CGT liability, 141 £9,436 Dispasa’ proceeds Less: Deemed acquisition cost Chargeable gain Less: AEA £ 165,300 {115,600} $6,300 (22,300) Less: Capital josses b/f 38,000 (4,300} Taxable gairis 33,700 Capital gains tax payable (£33,700 x 28%) 9,436 ee Tutorial note | A transfer between spouses is a an gain/no loss transfer. Sophio’s deemed acquisition cost is | equal to the deemed proceeds on the tronsfer from her husband. This is equol to his _ acquisition cost 410 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 458 458 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 142 TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 8 < rc Tutoriof mote The CGT due dote will be the same whether the asset is split between spouses (or civil portaers) or not, 143° AandD Examiner's report This question covers all the rules about the current and brought forward capital losses, The question isin the format of multiple choice from which two options should be chasen, Brought forward capital losses are deducted after the annual exempt amount (AEA) is deducted, thus ensuning that no AEA is wasted. Capital losses ore generally not sct against income but con be carried forward to be szt off Sgeinst future chacgeadle gains. 144 £2,000 £ Painting 1 Non-westing chattel bought and:suld for < £6,000 Exernpt Painting 2 Sale proceeds 7,200 Less: Cost §1,000) Chargeable gain 6,200 Gain cannot exceed 5/3 x (E7,200 - £6,000} 2,000 Total chargeable gain (£0 + £2,000} 2,000 i Tutoriat note The two paintings dispased of in this question are non-vwasting chattels, if non-westing chottels ore Bought and sold for £6,000 or fess they ore exempt. if bought for £6,000 or less but are sold for more than £6,000, the gain is restricted to; 5/3 = (gross proceeds — £6,000). KAPLAN BUSLISHING 411 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 459 459 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 145 C Less: Allowable sefling costs (egal foes) 6,000 (300) Net salo proceods 5,700 Seemed sale proceeds Less: Allowable expenditure (22,000) Cost Incidental costs of accursition {800) {27,100) Allowable foss ia Tutorial note The vase disposed of in this question is a non-~wasting chattel. fa nan-wasting chattel cost mare than €6.000 but & sald for £5,000 or less, the allowable | loss'is calculated using deemed gross soie proceeds of £6,000. 146 £4,000 Chargeable gain Loss: Currant year capital losses Net currert year gains Less: AEA E 23,700 (19,100) 13,600 (12,300! 1,300 Less; Capital Josses b/f [festricted) (3,300) Taxahle gains a Capital loss c/f £ 2021/22 Loss 412 5,300 Uifised — 2022/23 (2,300) Loss c/f 4,000 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 460 460 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 & Tutorial note The offset of capital losses brought forward is restricted to preserve the onan! exempt | amount. 147 Cc £ Saie proceeds 78,300 Less: Allowable clement of acquisition cost (WW) Chargeable gain (12,600) 16,200 Working: Allowable element of acquisition cost Remaining life at disposal = 9 years Estimated useful life = 15 years. Allowable cost = £21,000 x 9/15= £12,600 148 dD é£ Sale proceeds Deemed cost of remaincer A25, 600 (£300,000 — £112, 500¢Wv)} Chargeable gain Capital gains tax payable by: (187,500) 238,100 31 January 2024 Working: Part disposal March 2017 Bremed cost of 10 acres disposed of; £300,000 » £150,000/{£250,000 + £250,000) 149 £412,506 BD £ Proceeds Cost (€31,320 x 14/30) ‘Chargrable gain KAPLAN 27,900 (14,616| 13,284 PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 461 461 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {FA2022) (9 Tutorial note The copyright Js a wasting asset os &t has an expected life of s 50 years. The ailowabie | expenditure is restricted te take account of the asset’s rotural fall in valve. | The osset’s fall in value is deemedto occur on a straight line basis over tts useful ife. 150 £73,000 £ Sole proceeds 230,000 Less: Cost (W) (252,000) Chargeable gain 78,000 Working: Restored asset base cost Original cost Plus: Restoration expenditure Less: Insurance proceeds 142,000 70,000 (60,000} Revised base cost 152.000 isd Tutorial note | Where insorance proceeds are received in respect of an asset that has been damaged there a part disposal. | However, if o# of the insurance proceeds are used in restoring the asset the taxpayer may | claim te deduct the praceeds from the cost of the asset rather than be treated es having made | apart disposal of the osset. | Remember to include the amount spent restoring the asset in the revised base cost. 151 Less; Insurance proceeds 73,009 41,700 (37,200) Revised base cost 77500 Original cost Poss: Restoration expenditure 414 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0... d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 462 462 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 152 TO PRACTICE CHARGEARLE GAINS QUESTIONS: SECTION 7 £10,133 ‘Sales proceeds (W) Cost {64,000 x 10,000/15,900) 22,809 {2,667} Chargeable gain 10,133 Working: Average of quoted prices 1283p {3220p + 135p)+2 Sales proceeds = £12,800 (128p x 10,000} Tutor’s top tips The share prices quoted In the question are given fn pence, but you are required te provide your answer in pounds, &e careful when entering your answer thet you have done this if the question requires yeu fo! 153 8B fF Gilts Exempt Martin pk shares: Proceeds— Market value 12,300 Less: Cost (8,000) ‘Chargeable gain 4,300 tel Tutoriat note Where an asset is transferred to 0 connected party, market value & substituted for octuol gross proceeds. 154 Matching order Matched first Matched second Matched third KAPLAN SUSLISHING 2,000 shares from the purchase on 1 October 3,000 shares from the purchase on 23 October 15,000 shares from the share poo! as at 1 October 415 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 463 463 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) ii Tutorial note The matching rules require that shores disposed of by an indiveiua! ore matched against shores oequired in the foilawing order: I Shares purchased on the same day os the dote of dispose; ther 2 Shares puschased within the following 30 days; then 3 155 Shares 4 the share poo! (mode up of shores acquired before the dote of disposal, £3,300 £ Chargeabe gain 45,300 Less; AEA (22,309) Texabdie gain 33,009 Cepital gains tax [£33,000x 10%) 3,300 id Tutoria) note The gain on the shores ls taxed at 10% as the disposal is eNglble for investors’ rellef (iR). IR apples ta the disposal af |= - unlisted ordinary shares In 9 trading company fincluding AllA shares) subscribed for (i.e, newly issued shares} an/after 27 March 2036 which have been held for a minimum period of 3 years storting on 6 April 2015 by an individual that ts not an omployee.af the company. | Siobhon had not mage any previous disposals, therefore the £10 million lifetime limit is | available, 416 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 464 464 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE sé CHARGEABLE GAINS QUESTIONS: SECTION 7 8B The allowable cost & £62,500 (W) and the capital gains tax is due on 32 January 2024, 10,000 Cost £ 260,000 40,000 50,000 300,000 10,000 9 Number Agril 2013 Rights issue {1:4} @ £4 per share May 20138 Bomus issue {1:5} March 2023 157 Purchase May 2014 = Sale {12,500/60,000 x £300,000) 40,000 60,000 300,000 (22,500) (62,500) 47,500 237,500 £100,000 The total consideration provided by Riley plc Is: Mv 2 Cash (50,000x £3) Shares (50,000 x 2 » £1.20) 150,000 120,000 50,000 40,000 270,000 90,000 Hunter has made a part dispasal in relation to the cash consideration. Less; Original cost (£150,000/£270,000 « £90,000) 150,000 (50,000) Chargeable gain 100,000 Disposal proceeds (cash: 50,000» £3) KAPLAN PUBLISHING 4i7 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 465 465 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 158 C Date Explanation 31,368%031.3.44 1.4.14 to 32.316 Actual cecupation Employed overseas 1.4.16 to 33.3,17 Actual occupation 1.4.37 to 32.3.23 Empty Total months Exempt months 24 24 22 72 2 168 105 Chargeable months 63 63 & Tutorial note Any period oF employment overseas & exempt, providing there is actual occupation at sonie | point before and of some point ofter the period of employment. The fast nine months of ownership are exempt as the property wos Angus’ main residence ot | same point. 159 £8,000 Chargeable gain betore reliets Less: PAR (£120,000 x 6/10} 120,000 (72,000) Less: Letting redief (W) 48,000 (40,000) Chargeable gain 6,000 Working: Letting relief Lowest of: 1 = Maximum = £40,009 2 PRR = £72,000 3 Gain on tetting = £48,000 bd Tutorial note | PRR is ovuitable an 6/10 of the goirus Mosume tes alwys occupied six out of the ten rooms | in the house. MMasuma cannot benefit from the rules of deemed occupation on the remaining | four rooms as she hos never used them as part of her mein residence. Letting relief is ovallabie | as the property bos been fetes part ofa shared occupancy, 418 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 466 466 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 160 TO PRACTICE CHARGEARLE GAINS QUESTIONS: SECTION 7 C £ Qualifying for BADR Gain on Saiz of business Less: AEA 3,251,200 {12,300} Taxable gain 3,238,900 Capital gains tax: £1,000,000 x 10% 100,000 £2,238,9D0 x 20% 447,780 547,730 id Tutorial note BADR /s available as Bhavin is disposing of his sole trader business that he hos operated for at least two years prior to disposal. BADR is subject to a lifetime limit of £1 million. Chargeable gains in excess of this are subject te capitol gains tax ot a rate of 20% as Bhavin is o higher rate toxpayer. Even if Bhavin hod not utilised his basic rate band, the chargeable gains in excess of the £1 million Mfetime limit would still all be toxed at 20% as the gains quolifying for BADR are deemed to utilise any remaining basic rate bard, 161 Candi F Only fixed {ie not movable) plant and machinery qualifies for rollover relief. Shares are not qualifying assets. Assets must be used for trading purposes to qualify for rollover relief. Goodwill quatfies for rollover relief provided it is disposed of by 3 sole trader and not a company, 162 ¢ Disposal on 13 May 2022 Chargeable gain is the lower of: 1 All of the chargeable gain » £38,600 2 Sale proceeds not reinvested {£184,000 - £143,000} = £41,000 As all of the gain ts chargeable in the tax year 2022/23, no rollover rele’ claim is possible. Accordingly, the base cost of the replacement asset Is the actual cost of £143,000, KAPLAN SUBLISHING 419 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 467 467 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 163 £70,085 E E Sale of warehouse Sale procends 270,233 Less: Cost 731211 Lass: ROR on factory (Note) (34,083} (290,128) Chargeable gain 70,085 ee Yutoria) note The proceeds fram the sale of the factory were fully reinvested In the worehouse. Therefore, the gain on the factary of £32,083 con be fully rolled over against the acquisition cost of the warehouse, 164 Aand D Unauoted shares in a trading company are qualifying assets for gift holdover irrespective of the percentage shareholding. relief Quoted shares are only qualidying assets f they are in the demor’s personal trading company. A company qualifies as 2 donor's personal trading company forthe purposes of gft holdover retie if at east 5% of the voting rights are held by the individual, However. unlike for BADR, there is no minimum holding period and no requzement for the individual to work for the company. Assets used by a donor’s personal trading company are also qualifying assets for the purposes of gift holdover relief but only if the company uses the asset in their trade. 165 Ben will qualify for BADR as he has worked for the company, and has owned at feast 5% of the shares, for af least two years prior to the disposal, The others do not mect all of these conditions. 420 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 468 468 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 166 TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 C Proceeds (MV) Less: Cost 98,000 (41,500) Gain before reliaf Gift holdover retief |balancing figure) $6,500 (45,000) ‘Chargeable gain |£53,000 ~ £41,500) 11,500 fa Tutorial note The juil goin cannot be deferred using gilt holdover retief where there are actuel proceeds in excess af cost {i.e the donor hax mode a profit). in this case the actual proceeds of £53,000 exceeded the cost by £11,500, Therefore £11,500 of the gain is chargeable immediately and only the balance can be deferred using gift holdover reliaf. There is no requirement for the donor to work ot the company or to hove Aete the shares for 9 minimum time period when cleiming gift haldaver retief in relation ta shores, these ore requirements for BADR, COMPANIES — CHARGEABLE GAINS 167 B Sale of warehouse Sale proceeds Less: Legal fees 830,000 Net sale proceeds Less: Cost [£250,000 + £20,000} 800,005 (270,000) Unindexed gain 330,000 Less: indexation allowance |Note) Cast {€270,000 x 0.278) Chargeable gain (38,000) (74,520) 455,480 Note: incexaton has been frozen st December 2017. KAPLAN BUSLISHING 421 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 469 469 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 168 Cc £ Land Sale proceeds Less: Cost Unindexed gain Less; Indexabon allowance (W) Cost (£20,000« 1.418} — restricted 45,000 {20,000} 25006 (25,000) Chargeable gain Warehouse Sale proceeds hess: Cost Unindexed joss o 75,000 {80,000} (S000) Less: Indexation allowance (Note} Allowable joss 0 (5,000) ree. Tutorial note The indexatinn avowonce cannet increase or create @ loss, 169 £55,000 £ Year ended 30 June 2022 Capital foss Offset against current year chargeable gain Loss carried forward 422 $0,000 (25,000) 55,00 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 470 470 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Se Tutorial note Copitat losses can only be offset agains? chorgeoble gains arising in the some accounting period. Any remoining lass is then carried forward against future capital goins. Capital losses cannot be offset against current year toto! profits nor carried bock ond offset ogalnst income or gains from previous accounting periods, 170 € The indexed cost on the disposal of shares is £19,705 {Wy}. Working: Share pool Numbor Cast indexed cost Aoril 1995 Purchase 14 ta December 2017 [Note] O86 ™ £33,000 June 2022 Sale (8,000/25,000 x £33,000/£61,578) 25,000 £ 33,000 E 33,000 28,578 25,000 33,000 61,578 (8,000) {10,560} (19,705) 22,449 AL 873 17,000 Note: indexation has been frozen at Decenrber 2017. i71 True False The £250,000 gain which could be deferred as a result of the acquisition of the machine will become chargeable on 1 October 2032 The company must make s rollover relief election by 31 December 2026 v The election must be made within four years of the later of the end of the accounting period ‘in which the old asset is soid and the new asset is acquired. ee Tutorial nete The deferred gain of £250,000 will become chargeable 10 years ofver the fepiacement osset is ocquired (3.2; on £ November 2031). KAPLAN PUBLISHING 423 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 471 471 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) PRACTICE SECTION B OBJECTIVE TEST CASES INDIVIDUALS — CAPITAL GAINS TAX 172 MICHAEL CHIN (ADAPTED) Key answer tlos A typical examination question on capital gains tax with = series of disposals covering a | variety of topics. Remember to use the market value as the proceeds in the computation of the gains when the disposal Is a gift. 1 B fi Disposal of business Goodwill Freehok! property 60,000 64,000 Storage unit (43,000) Net chargeable gains qualifying for business asset dissosal relief 131,000 ei Tutorial note The net chargeable gains an the disposal of an unincorporated business qualify for HADR | provided the business has been owned by the sole trader for two years prior to the disposal. The penod of ownership of the individual assets is irrelevant. 2 £74,000 Ordinary shares in Minnow Ltd £ Deemed proceeds = MV Less: Cost 180,000 (87,500) Loss: Gift holdover relief (VW) §2;500 (74,000) Chargeable gain 424 18,500 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 472 472 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Working The gift holdover retief in respect of the ordinary shares & Minnow Ltd is restricted because the shares are in Michael's personal trading company (i.e, he owns > 5%) and the company has investment assets. The sraportion of gain eligible for gift holdover reliei is the proportion of chargeable business assets to chameable assets, calculated as follows: Gift holdover reket = (£92,500 » £200,000/£255,000) = £74,000 re Tutorial note Gift holdover relief is veliadle os ordinary shores in an UNquoted Irading company ore qualifying assets for gift holdover relief ourposes. However full relief is net available as the Shares are in Michael's persona trading company and the company holds investments. 3 D £ Painting Gross proceeds [£5,900 + E655) Less: Sefling costs 6,55 {656} Net proceeds 5,900 Less: Cost {4,000} Gain 1,900 Chargeable gain restricted te maximum of 5/3 = (£6,556 — £6,000] 927 927 itis important to be able to recognise when an asset ls a chartel jie. tongible ond movable) and therefore that the disposal is subject to special rules. | 4 Chargeable gain/ allowable loss Gain not chargeabie/loss not allowable _ Neckiece Boat | Machine KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 473 473 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) id Tutorial note itis important to be able to recognise when on asset is a chattel i.e, tangible and movabje}. _ and therefore thot the disposal is subject to special rules. The necklace (sa chattel thet wos bought and sold for less than £6,000. It is therefore on | exempt chattel and the loss ts not an allowable loss. The boat s exempt as o wosting chottel and the goin is therefare not chorgeabie, The machine ls o wasting chattel, but os it hos been used for trading activities it is not an _ exempt disposal. Nowever, the capital toss is not atowable os relief will be given through the | capita! olfowances computotion instead. 5 Lossb/f | Use against gains qualifying for BADR £16,800 Use against gains not qualifying BADR v £19,000 Loss left to c/f to 2022/23 £ Capital lass — 2020/21 16,800 Less: Used in 2022/22 iW} Loss off to 2022/23 0 16,800 in order te maximise the tax saved, the loss should be used against gains not quaffying for BADR. Working =~ Capital loss brought forward £ Chargeable gain — 2021/22 17,100 Less. Current yeer capital less (7,000) Net current year gains Less: AEA (restricted) Taxable gain 10,100 (10,100) 0 ba Tutorial note The capital toss Orought forwerd is notused In the tox yeor 2022/23 a5 the AEA afready covers the net gow, 426 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 474 474 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 173 TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 BO (ADAPTED) Key answer tips This case covers an individual making disposals eligiste for reliefs. The first two cuestions relate to a gift of a business asset and the application of git holdover relief, follawed by basic calculathon of capita! gains tax. The third question tests cayment end cleim dates ~ it is important to learn the administration ruses and to.be able to apply them to a given scenario, The fowth question is 3 basic calculation of capital gains tax, The 48st question relates to a separate individual and tests the rules regarding PRR. i a Since no consideration has been peld for the shares, all of Bo's chargeable gan can be held over fic, deferred) with a gift haldover relief claim. The base cost of Chi's $0,000 £1 ordinary shares in Botune Ltd is: £ MV of shares acquired Less: Gift holdover relief (W) Base cost of shares 210,000 (216,000) 34,000 Working: Gift holdover retiet E Ocemed proceeds = MV 220,000 Less: Cost (94,000) 416,000 Less: Gift holdover retief Chargeable gain KAPLAN SUBLISHING (115,000) 0 427 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 475 475 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) 2 True | Bos chargeable gain would have been £66,000 Faise v Bo and Chi would nat have been able to dain gift v holdover relief | The base cost of the shares for Chi would be £210,000 v Bo and Chi would have been able to claim gift holdover relief as the consideration peid for the shares would be fess than the market value. Bo’s chargeable gain vould have been ceiculated as fotiows: £ 210,000 Deemed proceeds = MV Less: Cost {94,000} 116,000 Less: Gift holdover relief (B} (56,000) Chargesble gain {£260,000 — £94,000) 66,000 The base cost of the shares for Chi would be £160,000, £ MV of shares acquired Less: Gift holdover relief (W) 210,000 (59,000} Base cost of shares 160,000 3 Election date S Apel 2027 «31. January 2028 CGT due date | 31 January 2023 $1 January 2024 “ id Tutorial note Capital gains tax is due under self-assessment, with the balancing payment jor income tax. on 31 January following the tax peor i.e. 31 January 2024 for the tox year 2022/23. A gift holdover relief claim must be mode within four years of the end of tax year of the gift ie. 5 April 7027 for a dispesal in the tax year 2022/73, 428 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 476 476 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 4 TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 £930 £ Chargeable gain 20,708 Less: AEA £12,300} Taxable gain 8400 CGT payable: t Remaining BRB (£37,700 - £30,700) - £7,000 £7,000 « 10% 700 £1,400 (£8,600 — £7,000) x 208 280 980 5 € Working: PRR Total months 116101030912 {occupled) 110.12 to 31.12.21 (unoccupied) 1,601.22 to 30,09.22 (last $ months) Exempt months Note 24 24 1i1 0 1 9 3 2 144 33 Chargeable months 434i 11a PRR = (£272,000 » 33/244) = £39,417 i Tutorial note a zZ Bo con't use. ‘three yeors for any reason’ as ¢ period of ‘deemed occupation’ as she ald not reoccupy the property. The last ning months ore always allowaobfe provised the property wos the taxpayer's PRR ot some tin, KAPLAN PUBLISHING 429 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 477 477 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 174 ALPHABET LTD (ADAPTED) a? Walk in the footsteps ofa top tutor Key answer tips | This is. a familiar style capital gains tax question involving three individuals making disposals. | All of them had shares in a company which is taken over, Takeovers can be complicated where there is maxed consideration and many students may have been put off by the opening paragraph. However, in ths question, there 6 no mixed consxieration and itis quite straightforward, | They are disposing of their existing shares and have a choice of either cesh or shares, but not a mixture of the two, Of the three individuals, one chooses cash and therefore they just have a straigitforward | disposal of shares for cash, | The other two choose shares, which is just 2 share for share exchange with no capital gains tax consequences at that time. The new shares just ‘stand in the shoes’ of the old shares and are deemed t have been acquired at the same cost and at the same time as the original | shares. They then dispose of some of the new shares. For the first part, detailed knowledge of the BADR conditions Is required. = 1 Meets the conditions for BADR Does not meet the conditions for BADR Aloi v Bon ¥ Cherry ¥ Aloi Aloi acquired her shareholding and became a director on 1 January 2012, so the qualifying conditions were met forthe 24 months prior to the date af the takeover, Bon Bon acquired her shareholding and became 2 director on 1 February 2921, so the qualifying conditions were not met for the 24 months prior to the date of the takeover. Cherry Cherry owned 3,000 shares out of the 190,000 shares in the cornpany, which is a 3% shareholding. This is less than the minimum required holding of 5% to qualify for the relief, 430 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 478 478 of of 744 744 PDF.js viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEARLE GAINS QUESTIONS: SECTION 7 3 Tutorial note Ta qualify jor BADR, the company must be trading and the individual must. . Own 5% or more of the shares, anc Work for the company, ano “ Must satisfy both of these conditions for 24 manths prior to the date of disposal Note thot the question specifically osks whether the Individuals meet the qualifying conditions in relation to their shores in Alphabet Ltd, i.e. before the date of the takeover. 2 £291,400 £ 3 Ordinary shares in Alphabet itd Disposal preceads (80,000 « £6} Cost (£50,000 + £18,600) 360,060 (58,600) Chargeable gain 793,400 c £ Ordinary shares in XYZ ple Disposal proceeds (£7.14 « 10,0004) Cost (£92,200 = 10,000/25,000) Chargeable gain 72,400 (36,880) 34,520 Working: Valuation of quoted shares The disposal is to a connected party (her brother) and market value is therefore used as the proceeds in the capital gains computation, The shares in X¥Z ple are valved using the mid-price {i,¢, average) of the quoted prices in the Stock Exchange Dally Official List: {£7.10 + £7.18) » 1/2) = €7.14 Total value ts 10,000 « E7.14 = £71,400 rea Tutorial note Following the takeover Bon received 25,000 ordinary shares in XYZ pic. Where there is a share for share exchange, the cost of the original shareholding is treated as the cost of the new shorehalding acquired on the takeover. The cost of the new shores dissosed of is therefore o proportion of the original cast of the Alphabet Ltd shares KAPLAN PUBLISHING 431 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 479 479 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION 4 A 5 A (FA2022) a Tutorial note Transfers on ceath ore exempt disposals for CGT purposes. The daughrer’s cost of acquisition | on a. subsequent disposal is the probate value Le. the morket volue of the shores of the date of death. 17S JORGEJUNG (ADAPTED) | Key answer tips This is & fairly typical capital gains tax question involving a number of disposals. It tests the cules for wasting assets which are not chattels, the marginal rules for chattel disposals and | part disposals. The last two questions then test gift hoover relief and business asset | disposal relief, and in particular look at the conditions for each rellef to apply. It Is important | to learn the conditions for each retie? and the differences between them, 1 B £ Copyright Disposal proceeds Less Deprecieted cost (£7,000 = 8/10) Chargeable gain 8,200 (5,600) 2,6 id Tutorial note The copyright is o wasting asset. The cost.of £7,000 must therefore be depreciated based on | an unexpired ilfe of ten years ot the dote of ocquisition and an unexpired iife of eight years ot _ the cate of disposal. 432 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 480 480 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 2 TO PRACTICE CHARGEARLE GAINS QUESTIONS: SECTION 7 £657 £ Painting Disposal proceeds: Less: Selling costs Net proceeds Less: Cost Chargeable gain Restricted te 5/3 x (£6,400 - £5,000} 6,406 (350) 6,050 {2,200} 3,850 667 oa Tutorial note The painting is a non-wasting chattel thet vras sold for more than £5,000 but purchased for fess than £6,000, The gain is restricted to $/3 » (grass proceeds — £6,000). 3 Cc £ Land ~ part disposal AMlowable cost £28,600 « (€97,000/(£9?,000 + £38,000)) Logal fees £500 x (£52 OOO/(ES2,000 + £38,050)} Toca cost 20,240 354 20,594 < Tutorial note The cost of the Jand for Jorge is £28,690, which!s the voiue when his father died Remember that where or individual inherits an asset the cost af acquisition is the morket value at the date of death fi.e. the probate value). fn addition, he incurred £500 on lego! fees defending his title to the jand, which is an oitswable cast of acquisition, His total base cost is therefore £29,100 {£28,500 + E500). The proportion of the lega! fees and the glowable cost of acquisition that can be deducted on the part disposal by forges are show as seporats calculations in the computation. it would be equally correct to show this os one colculation based on the tote! base cost of £29,190 as follows: £29, 100 * [£92,000/(£92,000 + £28,000)) = £20,594 KAPLAN SUSLISHING 433 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 481 481 of of 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) 4 True False The company must be an unquoted company The company must not own any non-business assets The company must be # trading company * “ Jorge must have owned the shares for at least two years o fa Tutorial note The company can be a quoted compony previded thot ft is the individual's persona) troding company (Le. Jorge ows ut heast S% of the voting rights). Uf the company owns non-business assets a gift holdover relief claim can be made but the | relief wil be restricted if the shares are in the individual's persanat company. | There are no minimum ownership period requirements for gift holtover relief. S Aandc ba Tutorial note The individual can work part time for the company, forge must own ot leost 5% of the shores of the company — but he can sell a smolher shareholding out af a shareholding of at least 5%. 176 ALBERT AND CHARLES (ADAPTED) re Watk in the footsteps ofo top tutar | Key answer tips | Atypical capital gains question with two distinct parts. The first part tests the rules for PRR -and husband and wife transfers, The second part tests the valuation of-a gift, the share | matching rules and the cornposition of the share pool, 434 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 482 482 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 1 TO PRACTICE CHARGEARLE GAINS QUESTIONS: SECTION 7 B One quarter of Albert's house was always used exclusively for business purposes, so the PRR is restricted to £462,825 (£840,000 — £222,900) = 3/4}. ia Tutorial note The lost nine months exemption does not apply to the whole house as one quarter has always been used for business purposes. if the business use had only been for part of the period of ownership, the Jost nine months would hove apolied to the whale house. 2 A,D Private residence relief (PAR) would have Seen aveBable to Victoria as marred couples must heve « single main private residence. Transferring 50% ownership of the house to Victoria prior to its disposal would have enabled her to use her remaining bower rate tax band af 18% for residential properties, There is no saving im respect of her annual exempt amount which has already been usec by her other disposals in the tax year. The capita! gains tax saving would have been calculated as: Gains Falling into the BRB for Victoria {£37,700 — £21,440) = £16,260 = lower residentiat rate of CGT applied (£16,250 x 10% (23% — 185¢}) 1.626 ba Tutorial note The tax saving could be calculated by computing the tax poyable by Albert at 25%, and then computing the tax payable by Albert and Victoria sharing the gain equolly. However, with only 2 merks available, there is insufficient time to perform al) of these cofeulations. Therefore, the examining team expects you to be able to see the effect of the plonning on the computations and perform a tero-line short cutcalcuictian, 3 KAPLAN £6,800 Share poo! Number Purchase 1 March 2014 Purchase 20 July 2018 20,000 8,000 Cost £ 19,200 27,800 Disposal 23 October 2022 (£47,500 x 4,000/28,000) 28,000 {4,000} 47,600 (6,800) Balance c/f 24,000 40,800 PUBLISHING 435 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 483 483 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 4 Valid reason Nota valid reason | | Charles has never worked for the company v Daphne paid Charles for the shares | Chatles did not own at least 5% of the ordinary | | “ P | | shares and voting rights in Restoration pic Ea | Tutorial note There is ma requirement for an individual to work for the campany in order ta clakn gift holdover relief. , The donee paying for the asset does not prevent gift holdover relief being available, However, | if the amount paid wxceeds the cost to the donor, the gift holdover reles must be restricted so | thet any actuaf capitol profit made by the donar ot the time of the sole will be immediately chargeable. 5 A £ Sale of painting— Apra 2023 Deemed proceeds Less: Cost of disposal Net oroceeds Less: Cost ASowable capital loss 6,000 {300} 5,700 (13,000} (7,300) ia Tutorial note You were required to aoply the rules for nan-wasting chattels, In this situation the gross | proceeds were <£6,000 and the cost wos 2£6,009. This requires the use of deemed gross | proceeds of £6,000 in the computation to determine the allowable capital loss. 436 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 484 484 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 177 ZOYLA {ADAPTED} TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 oe Walk in the footsteps of @ top tutor i Company Size of shareholding Holding period Minor Ltd ¥ Major pie v. ce Tutorial note The shares in Minor Lid hed not been owned for the 24 months required for dalming business asset dsposal relies. Mojar wasn't Zoyla’s personal compony i e-she didn’t oven 2 5%. 2 A Number of £ shares 15.8.2026 12.12.2020 20,6.2022 3 Purchase 22,500 117,000 = Rights Isswe (2:1) @ €7.40 per share 22,500. 166,500 45,000 282,500 Sale {£283,500 « 20,000/45,000) (20,000) (126,000) 25.000 157,500 £154,880 Michprice per share (£9.62 + €9.74}/2 Total value of shares sold (€9.68 x 16,000} E 3.68 154,880 Se Tutorial note The octuol procesds received must be substituted with market value ot the dote of the disposal as Zoyla and her son ore connected for capital gains tar. The market value.is determined by taking the mud-price of the prices quoted an the stock exchange on the dote of disposal. KAPLAN BUSLISHING 437 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 485 485 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION 4 {FA2022) 8 Ed | Tutorial nate The disposal would have fallen into the tax yeor 2023/24 rather than the tax yeor 2022/23 | and the dur date of payment! of the resultant CGT would accordingly hove been 31 January 2025 rather than Zl January 2024, $ True Zoyla would not have saved any CGT, but would have benefited from the delayed payment date False Vv Zoyla would have saved CGT of £12,300 x 20% = £2,450 due to the AEA for the tax year 2023/24 being available Zoyla would have saved CGT of £10,600 » 20% = £2,120 dur to the remaining basic rate band for the tax year 2023/24 being v avaliable Ed Tutoria! nota | Zoyia would hove saved CGT of £20,600 x {20% — 10%) « £1,060 due to the remaining bosic | rote band for the tax year 2023/24 being available, 178 HALI AND GOMA (ADAPTED) _ Key answer tips , Atypical exeminstion question on capital gains tax covering & variety of topics, | The first question tests capital losses, which are regularly. tested, therefore you shauld ensure that you learn the rules in relation to Soth current year and brought forward loses. The second and fourth questions require you to identify the base cost of shares and a chattel | respectively, The second question includes an asset transfer between husband and wife, | which is automatically on 8 no gein/no loss basis, The fourth question requires knowledge of "the treatment of compensation recelved for a destroyec asset, including tne impact of _ reinvestment of the proceeds in a replacement asset. | The third end fifth questions are relatively quick questions to answer. Question three tests | the conditions in relation to BADR. Question five asks you te identify the exempt assets fram | alist. If you are unsure, try to efiminare some of the answers If possible, then make a sensible attempt and move an. 438 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 486 486 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Hali 2021/22 £ Chargeable gain Less: AEA 16,300 (12,300) Less: Capital losses b/f (restricted) (4,000) Taxable gains Capital loss c/f 2020/21 Loss 39,300 Utilised— 2021/22 {4,000} Loss c/f 35,300 Gome 2021/22 Chargeable gain Less; Current year capital joss 6,900 (8,500) Net gain Capital loss c/f 2021/22 Loss Utilised- 2021/22 9,100 {6,900} Loss c/f A Hall's deemed cost ts equal to Goma’s acquisition cost of £5,000 {£1 = 5,000), The selling price of £4.95 & the value per share, Given the need for a quick sale, there is no feason to believe that this is nota bargain at arm's length. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 487 487 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) 4 c £ Insurance proceeds Less: Cost 62,006 (44,000) Chargesbie gain 18,000 Cost of replacement table 63,600 Less: Gain deferred (Note) (18,000) Bese cost 45,606 £ Note: The insurance croceads were fully reirwested within 22 month, therefore the gain can be deferred in full 5 A Qualifying corporate bonds, cars and shares held In an 154 are all exempt assets for the Purposes.c? capital pains tax. COMPANIES — CHARGEABLE GAINS 179 HAWKLTD (ADAPTED) @ Walk in the footsteps of a top tutor Key answer tips The only capital gains rete? availsble to companies is follower rele! and therefore it is not | Surprising to see it in this question as It is often tested in corporation tax questions. 1 68 £ $1,000 3,200 Cost Legal fees indexation allowance On. costs [July 1998 to December 2017) 0,706 = £84,200 [£81,000 + £3,200) Total allowable costs 440 $9,445 143,545 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 488 488 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 ig Tutorfal note Mndexation hos been frozen ot Decensber 2017. All costs incurredjn july 1998 (including the legal fees} should be indexed to December 2017. The repairs are cot deductible as they are simply a revenve expense. 2 Goodwill acquired on the purchase of the trade ane assets of another business Vehicle costing £150,000 with an estimates useful life of $0 years Land acquired for busmess use 75% shareholding of an unquoted trading company isa Tutorial note Assets which quollfy for rollover relef ore: - Lond and buildings used for the purposes of the trade - Fixed ptan tand machinery Goodwill is a auallfwng asset for individuals fut net for companies. A vehicle is not fixed (ie. immovoble) plant and machinery. 3 Maximum rollover relief £240,000 latest_ 30 April 2025 £300,000 v 31 March 2026 oe Tutorial note The gain rolfed over is the indexed gain. The reinvestment must take place dy 30 Apri! 2025 {L.e. three years after the aote of saie). KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 489 489 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION 4 {FA2022) €496,160 The factory was sold for £496,160 (net of disposal expenses}. Therefore, this is the emount that Hawk Ltd will have te reinvest in order to cleim the maximum possible amount of rollover relief. ' ' Ea Tutorial note HM: Revenue and Customs alow full rollever reilef provided the net sale proceeds ore | reinvested in qualifying ossets. It is not necessary to reinvest the gross sale proceeds. s A lndexed cost of ordinary shares; £18,000/£30,000 « £12,524 =£7,874 Workings (W1} Share pool — White pic Number Cost £ Purchase — June 2002 3,020 8,000 Indemed cast E 8.000. Indexztion to takeover— July 2022 (restricted to Dec 2017) (£8,000 x 0.578) 4.624 3,020 8,000 12,624 (W2} Consideration received on takeover MV £ 6,000 ordinary shares @ £3 18,000 6.000 preference shares @ £2 32,000 30,000 a Tutorial note indexation alfawance has heen frozen ot December 2017. 442 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 490 490 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 180 KATLTD (ADAPTED) ie i TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Wolk in the footsteps of a top tutor A Cost (Qctober 2005) Add: Capital improvements. (December 2007) £ 138,600 23,400 262.000 indexation: October 2005 to December 2017 0.439 © £338,600 66,845 indexation: December 2007 to Decernber 2017 7468 0,319 » £23,400 66,310 Se Tutorial note The indexation allowance must be cakuloted seporately on the capital improvements as the cost was incurred in December 2007. indexation has been frozen ot December 2017. 2 True False The base cost of the warehouse for chargeable gains ourpases will be £170,470 The ctairn for rollover cefief against the warehouse must be made by 31 Mareh 2027 A further claim for rollover relief may be made if another quaifying asset is acquired by 31 March 2026. The base cost of the warehouse for chargeable gains purposes wil! be £262,470; Less: Gain rolled over (W)} 302,000 (39.530) Ssse cost 252470 Cost KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 491 491 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {FA2022) Working: rollover relief £ 131,530 Gain Rollover retief (Bi) (39,530) Chargeable gain = Proceeds not reinvested (£394,000 ~ £202,000) 92,000 The claim for rollover relief against the warehouse must be made within four years oF the fater of the end of the accounting period in which the asset & sold (year ended 31 March 2023) and replaced {year ended 31 March 2024). Therefore; the claim for rollover relief rnust be made by 31 March 2028. A further caim for.rollover relief may be made if snother qualifying asset ts acauired by 20 November 7025 (three years after the disposal] oa Tutorial note ‘The gain. can’t be rolled over in fuil as the proceeds are only partially reinvested. The gain | which Is chargeabie immediately is the tower of: - the gain on the qualifying asset disposed of, and - the proceeds not reinvested in the replacement asset. The balance. of the gain can be deferred by rolling it into the bose cast of the replacement | asset 3 | #6«CO = kd Tutorial note The leasehold building is. depreciating asset as it has an expected life of no mare than | 60 years. The gain will erystallise ot the earliest of; — the dote the replacement asset is disposed of t the date the replacement asset ceases te be used for trads purposes, and _— ten years frarn the dote of the replacement asset's acquisition The fatest dete is therefore ten years from the dote of the leasehold office building’s | deauisition on 20 September 2023. 446 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 492 492 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 4 TO PRACTICE CHARGEARLE GAINS QUESTIONS: SECTION 7 £63,200 7.7.2013 72.5,2026 (90,000 * 2/3 = 60,000 x £6.40} Balarice at $.10.2022 Disposal {20,000/350,000 « £474,000) Batarice carried forward Number £ $0,000 Cost £ 98,000 60,000 384,000 350,000 £74,006 (20,000) (63,200) 130,000 410,800 5 ] CGT lability £17,580 Due date J £18,810 31 July 2023 31 lanuary 2024 2022/23 “ BADR gains Non-BADR gains £ Kat itd shares Vase Chargeable gains 25,100 142,200 AES Taxable gain Capital gains tax at L0K/20%, Total CGT payable (£14,220 + £3,360} £ 142,200 29,100 (12,300) 142,200" 16,800 14,220 3,360 £17,580 ia Tutorial note Kitten has some of her basic rate band remaining. However, gains qualifying Jor BADR are treated as using up any remalning bosic rate bend in priority to other gains. This means that the gain on the vase is taxed ot the higher rate of copitol gains tax. The annua! exempt gomount shoul? be offset against gains thet don‘t qualify for BADR jn order to sove tox at higher rote. KAPLAN SUSLISHING 445 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 493 493 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION ({FA26022) PRACTICE SECTION C CONSTRUCTED RESPONSE QUESTIONS INDIVIDUALS — CAPITAL GAINS TAX 181 OAVID AND ANGELA BROOK (ADAPTED) ret Walk fn the footsteps of a top tutor Key answer tips | A classic question invotving the calculation of capital gains tax liabilities of a husband and | wife, with a joint esset and assets Held personally. r Tutor’s top tips | Predictably a husband and wife no gain/‘ne joss transfer is included, with the subsequent | disposal by the recipient spouse | Remember to consider BADR on the disposal of shares and the business. David Brook Capital gains tax liability — 2022/23 £ 35,988 G House (V1) Shares in Bend Ltd (W3) Total chargeable gains 36,988 bess: AEA (12,300) Taxadle gain 24,688 Capital gains tax [£25,483< 18%) 4,944 ia Tutorial note Dawid has no taxable incume. All of his goins therefore fall into his basic rate bond and are | taxed ot the CGT rate applicable to gains on residential properties falling velthia the basic rote | band, BADR is not avallobie on ony of his gains, 446 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 494 494 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Angela Brook Capital gains tax liability — 2022/23 Other Residential gains property House {WI} 46,988 26,400 Ordinary shares in Bend Ltd (VW/4} Warehouse 3,700 Total chargeable gains: Lass; AEA 3,700 26,400 36,988 (12,300) Taxadle gain 3,700 26,400 24,688 Gains qualifying for BADR: Other gains: Residential property gains E 3,700 x 10% 370 6,855 x 10% (W5) 19,545 x 20% 3,909 26.400 24,683 «28% 6.913 54,788 Capital gains tax liabitity lls? > +? Tutorial note The AFA should be offset against gains en residential property in priority to-other gains In order to save the niaximem amen? of tax, Angelo has toxable Income that uses some of, but nor all of, ter basic rote bond £3,700 of this is autornatically used by the BAGR gains first, lenving £6,855 to set against the other gains. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 495 495 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) Workings (Wi) House Tutor’s top tips | fan asset is jointly owned by husband and wife, all you need to do is calculate the gain os usual and then split it 50:50, | Moke sure you show your working for the catculation of PRA. Even if yeu can’t count months, you will stl Ge given marts for applying the correct principles! = Disposal proceeds 381,900 Less: Cost {86,000} 295,900 Less: PRR [W2} (221,525) Chargesble gain 73,875 David and Angela will each be assessed on 50% of the chargeable gan:. Chargeable gain each = (£73,975 x SOX) = £36,988 (W2] Qecupation of the house The total penod of ownership of the house. is.240 months {189 4 $1), of which 180 months qualify for exemption as follows: 1,130.02 te 31306 1.4.06 1032.12.09 Total months 42 45 occupied) = [working in UK) 1£10%031.1216 occupied) 84 LLAF (311221 = [unoceupied) 60 112.21 ta 30.3.22 [final nine reonths) Exempt months 42 45 Chargeable months 84 60 9 9 240 180 60 PRR = (186/240 « £295,900) = £221,925 Tutor’s top tips | Make sure thot pou inckide o brief explanation jor the period's you allow as exempt due to the | deemed arcupation rules — as the examining team hes sald that such expionations are _ fequired to obtein maximum marks in these questions. 448 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 496 496 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 {W3]} Shares in Rend itd - gift by David Tutor’s top tips Remember that the market value at the time of the inmer-spouse aft is o red herring and irretevant, The transfer wil be at no gain/ne foss. Transfers between husband and wife are no gain/ne toss transfers, David makes no gain and Angela takes over David's cost of £48,000, (W4) Shares in Bend itd~ Sale by Argela E Disposal preeseds 62,400 Less: Cost {£48,000* 15,000/20,000)} (36,000) Chargeable gain 26,400 = Tutoriaf mote it ts not cleor whot percentage interest Angela hos in Bend Ltd and whether it is her personal trading campany fi.e. she holds 5% interest or mare) However, even if she does hold at least | 5%, BADRés not available os Angelo does not wark for the company. (W5] Remaining besicrate band Basic rate band Less: Taxable income Utilisad by BADR gains Remaining basic rate band KAPLAN £ 37,760 (27,145) 10,555 (3,700) 6,355 BUSLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 497 497 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (FA2022) | Examiner's report | Although there were some very good answers to this question from wel prepared | candidates, 1 caused problems for many and was often the reason that they failed to achieve | 8 pass mark. The jointly owned property caused particular difficulty. Only a few candidates correctly , calculated the [private residence relies. | Some candidstes did not sllocate the resulting chargeable gain between the couple but instead deducted an annual exempt amount and calculated a separate tax liability. | Note: The examiner's report has seen edited to remove comments on elements of the question that have been deleted due to changes to the examination formet. ACCA marking scheme Marks Jointly owned property — House — Proceeds Tost os — Peicd of cxcenption —fremption 20. tO ~ Division of gain 05 Davis Brook — Send ita 0.5 ~ Anngal oxempt ameunt as — Captal pres tae Os Angels drcok— Bend Ltd - Process ~ tos 4S os ~ Warchouse gar canitfies for 8408 as — Anewal exempt arnouns O5 — Capital gains ta2 ae Total 182 05 ido BILLDING ee Woik in the footsteps of a top tutor | Key answer tips This ls a tricky question, examining three capital gains tex reliefs. A good knowledge of the | conditions for all three refiefs and the way that they are applied is needed to score well here, and this shouk! be a good test of whether you are well prepared for these topics! | In'séction {aj 2 father gifts shares qualifying for BADR to his daughter, and they make font | claim for gift hoidever relief, The daughter then sells the shares before two years have | efapsed, meaning her disposal dees not qualify for BADR, In section (b} you ace asked to not | apply gift holdover relie?, in order for the father to benefit from BADR on the full gain. in section {c} you are asked to compare sections (2) snd (b}, This style of requirement has become a frequent feature of the examination, so you should make sure that you are | prepared for it 450 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 498 498 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE {3} CHARGEABLE GAINS QUESTIONS: SECTION 7 BI and Belle make @ joint clalm for gift holdover relief BiH Capital gains tax liability ~ 2022/23 £ Deemed proceeds (Market value) 260,000 Less: Cost (112,000) Less: Gift holdover relief (W) 148,000 (123,333} Chargeable gain Less: AEA Taxable gain Capital gains tax {£12,367 x 10%) (Note) 24,667 (12,300) 12,367 1,237 A gift holdover relief claim must be made by both Bill and Belle by 5 April 2027 {ie. within four years of the end of the tax year of the gift). Working: Gift holdover relief on shares in High Rise Ltd Gift holdover relief is available on these shares as they are in an unquoted trading company. However, the gift holdover rclicfin respect of the shares in High Rise Ltd ib restricted because the shares sre in Bill’s personal trading company {i.e. he owns 2 5%) and the company has kwestment assets. The proportion of gain eligible for gift holdover relief is the proportion of chargeable business assets to chargeable assets, calcutated 3s £148,000 x £150,000/£180,000 = £123,333. Belle Capital gains tax liability - 2022/23 f Proceeds Lass: Cost {£260,000+ £123,333) Chargeable gain 128,333 Less! AEA (12,300) Taxable gain 116,033 Capital gains tax (£716,033 x 20%) KAPLAN 265,000 {136,667} PUBLISHING 23,207 451 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 499 499 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) id Tutoria! note i High Rise itd quolifies as Bill's personal company, as he holds at least $% of the shares. As he has both worked for the company and heid the shares for at least two years orior to disposal, BADR is available. /2 High Rise Ltd alse quutifies as Belle’s persona! company. However, she fas not held the shares far tio years and therefore does not qualify for BADR. As she is an employee of High Rise btd she does net qualify investors’ relief irrespective of the ownership period. 3 As aioint claim for gift holdover relief has been made, the cost for Belle is reduced by the omeunt of relief cloimed. (b} Bill. and Belle do not make a joint claim for gift holdover relief Bal Capital gains tax Hability— 2022/23 E 280,000 Deemed proceeds (Market value} Less: Cost {112,000} Chargeable gsin quatifying for BADR 198,000 Less: AEA (12,300) Taxable gain 135,700 Capital gains tax (£135,700.x 10%} 13,570 Belle Capital gains tax liability 2022/23 € Proceeds 265,000 Less: Cost (280,000) Chargeable gain 5,000 Less AES {5,000) Taxable gain 452 6 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 500 500 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS (c} TO PRACTICE CHARGEABRLE GAINS QUESTIONS: SECTION 7 Comparison capital gains tax payable under options (a) and (b} Bil Belle Option (a) £ 1,237 23,207 Option (b) £ 13,570 4 Total 24 AAA 13,575 Conclusion of best option * Total capital gains tax payable is £10,874 lower under option (b) {£24,444 £13,570) as more of the goin is taxeble on Gill, who pays tox at 10% as the disposal qualifies for BAOR. . Bill however, may oréfer option fa) as his own capital gains tex payadle & £12,333 (£13,570 - £1,237) lower due to the claim for gift holdover relief. Tutor’s top tips tn part ic} you ore asked to summanise the capital gains tax ligbilities that you have calculated in ports (a) and (b) and conclude an the most favourable option. Provided that you use the capital gains tax figures that you have catewated in the earier parts of the question, und come to a sensible conclusion, you will score marks bere, even if your answers to parts (a) avd (>) are incorrect. JEROME (ADAPTED) [4 Walk in the footsteps of a top tutor Key answer tips This Question tests basic chargeable gains computations for individuals, along with a key relief: gift holdover relief. Italss required calculations of the base costs for the recipients of the assets gifted in the tax year, You do not have to deal with disposals in chronological order. The disposal of the bracelet was relatively straightforward and would have been a good piace to start. You should be familiar with the chattels rules that apply to this disposal, KAPLAN PUBLISHING 453 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 501 501 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (a) Tutor’s top tips. | Don’t forget that disposals of assets between husband and wife and civi) partners are automatically an a no gain/no loss bosis. if you are provided with the market voiue or any | actual proceeds they are merely there to distract you. When dealing with o cart disposal of jand, the morket value of the part disposed of and the | remoinder should be used to determine the cast for the computation, Don’t be tempted to | use the proportion of asset being disposed of i.e. 9/10 acres Jerome = Chargeable gains 2022/23 House The gift of the house does not give rise to any Bei or loss because it is 3 transfer between spouses. Reward itd £ Deemed proceeds Cost 98,406 (39,000) 53,406 Gift holdover retieF {WV} Chargesble gain 450,600) 8,800 Working — Gift holdover relief Gift holdover relief is restricted to £50,600 (£59,400 » £460,000/f540,000), being the proportion of chargeable Susiness assets to chargeable assets. Antique bracelet £ Dispasai proceeds 12,200 Cost {2,100} Chargcabic gain 10,100 This ss ‘ower than the maximum gan of £10,333 (5/3 « (12,200 — 6,000). 454 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 502 502 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEARLE GAINS QUESTIONS: SECTION 7 land £ Disposal proceeds Cost (W) 78,400 (26,460) Chargeable gain §1,940 Working ~ Cast The cost relating to the nine acres of land gifted is £26,460 (£37,800 x £78,400/(£78, 400 + £33,500)), mn v Tutorial note The gift holdover relief computation tested the restriction on gift holdover retief that epplies in a very specific scenario. When an individual makes o gift of shores in their persona! company (i.e. owns 25% of the shares), the gift holdover refief is restricted by reference to the proportion of the company's chargeable business essets to its chargeable assets. The disposal of land is @ port dispasal requiring the application of A/1A+B) to the full cost of the land. Any cost not included in the computation is the base cost of the remaining land. {b) 1 The house has a base cost of £112,800. 2 The 12,000 £1 ordinary shares (£98,400 — £50,600). Reward Ltd have a base cost of £47,800 3 The bracelet has a base cost of £22,200. The nine acres of land have a base cost of £78,400, Examiner's report This question was on capital gains tax, and was generally very wall answered. A taxpayer had made various gifts to family members during the tax year. These were (1) a no gain oF loss git of 8 house to their spouse, (2) a gift of shares in an unquoted trading company which qualified for gift holdover relief, (3) the gift of a non-wasting chattel, and (4) s part disposal of land. Part {a) required 2 calculation of the taxpayer's Chargeable gains for the tex year. The only aspect which consistently caused problems wes the grt holdover relief, with relief being restricted to the proportion of the company’s chargeable business assets to chargeable assets, Part (b) required the base cost taken over by each recipient. Akhough relatively Straightlorward, this requirement often resulted in detailed, incorrect, workings. The gift te the spouse caused particular problems, with the base cost being the value at the time it was inherited by the taxpayer~ not the value at the time of the gift, KAPLAN PUBLISHING 455 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 503 503 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) ACCA marking schema {2} Marks 05 No ganyte fess Reward shares proceeds os us 1s Os os 10 as 15 Meware shares cost Git holdover retef—CHA/TA Antique bratele! proceeds Artique bracelet cost Max — SiS be Land praceecs Land cost AJA+B 7a [D} 10 10 os us House base cost Reward shares bare cost Breatet tase cost ‘Land dasa cost 30 10.4 Total 184 GINGER AND NIGEL (ADAPTED) we Walk in the footsteps of o top tutor | Key answer tips | This question tests twe important capital geins tax reliefs: gift holdover relief and BADR. | Part (a) tested gift holdover retief but in a slightly unusual way which required the application _ of the modified gift holdower retef rules for sales at an undervaluation, and a calculation of | the maximum numter of shares that can be gifted without a capital gains tax liability arising. | youare ever unsure of how to deal with part ofa question,it is importantto make asensible Lattempt acid move on, rather than waste time, or potentially miss easy marks by not | attempting to answer the part. "The highlighted words are key words of phirases that markers are looking for. Part |b) compares the CGT payable by-2 husband of wife on the disposal of shares. Again easy _ marks were available for the basic gains computation in each case and the calculation of the | differance in tax payable by the two individuals. 456 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 504 504 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS {2} TO PRACTICE CHARGEARLE GAINS QUESTIONS: SECTION 7 Ginger Tutor’s top tips Remember that where there is a disposal at an undervalue {as oppesed to an outright gift} then part of the goin may be chargeable now and cannot be held over (deferred). The examining team has given you a hint in the question as to how (o approach the answer by stating thot Ginger has not utiised her annual exempt amount. * The disposal is st an undervalue, so only the ‘gift’ element of the gain can be held over. . The consideration paid for each share will be immediately chargeable to capra! gains tax to the extent that t exceeds the allowable cost, & The chargeable emount Is therefore £1.61 [£4.00 - £2.39) per share. . Ginger’s annual exempt amount for the tax year 2022/23 is £12,300. * She can therefore sell 7,640 shares {£12,300/£1.61) to her daughter without this resulting in any capital gains tax liability for the tax year 2022/23, > Tutorial note This method may have proved quite challenging to some students. Jf you ore unsure how to tock’ the question, then make sure you write down whet you do knew. One mark wes ovoifoble for simply stating how to caicwote the goin on a tronsfer ot an undervalue and another half mark for stating the amaunt of the annual exempt amount! Proof of the calculation: £ MV of shares (7,640 x £6.40) Less: Cost {7,640x £2.39} 48,896 (18,260) Capitat gain 30,636 Less; Gift holdover relief (7,640 x (£6.40 - £4.00}) (18,336) Chargeable gain (7,640 x [4.00 - £2.39))} fexcess actual proceeds received) Less: Annual exemot amount (£1 remains unused} 12,300 (12,300) Taxable gain KAPLAN PUBLISHING oa 487 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 505 505 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION {FA2022) (b) = Innocent and Nigel i | Tutor’s tap tips Clearly, the CGT is not going to he the some far both innocent and Nigel, sa you need ta look _ Out for the differences in they circumstences. You are aiven a lot of information concerning | their tota! shoreteldings ond employment position. As this is different for each of them this Should give you a hint thet you should consiger how. this 's relevant for determining them CGT | Mobitty. ® H innocent makes the disposal, then her CGT lability for 2022/23 wil be; £ Disposal proceeds 58,000 Less: Cost (2,000 = £1) (2,000) Chargeable gain 63,000 Capmtal gains tex (£63,000 x 10%) 6,300 Inrrccent pays CGT at 20% as the disposal qualifies for BADR- . If Nigel makes the disposal, then his CGT liability for 2022/23 will be: £ Disposal proceeds §5,000 Less; Cost (646,200 « 2,000/3,000) (30,809) Chargeable gain 34,200 Capetal gains tax (£24,200 x 20%) 6840 Nigel pays CGT at 20% because he is a higher rate taxpayer andthe disposal dees not qualify for BADR of investors’ relief. . 458 The capital gains tax saving if Innocent makes the disposal rather than Nigat is therefore £520 (£6,840 — £6,309}. KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 506 506 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEARLE GAINS QUESTIONS: SECTION 7 ig Tutorial notes 1 A disposal by Innocent will qualify for BADR as she is the monaging directar af Cinnamon itd, the compeny is o trading company, her shareholding of 20% (20,000/100,000} is more thon the minimum required holding of 5% and she has held the shares and worked for the company for more than two yeors, The gain ts therefore taxed ot 10%. 2 A disposal by Nige! wil not qualify for BAOK as he is not an officer or cn employer of Cinnaman Ltd and his shareholdingis anly 3% (2,000/100,000). As Nigel is a higher rate taxpayer (taxable income £80,000) the gain is taxed at the higher rate. 3 A disposal by Nigel will not quatify for investors’ reiief as he did not subscribe for the shares {i.@. buy newly issued shores from the company), Examiner's report Athough there were a number of correct answers to part (a), it caused difficulty for many candidates, The main problem was not spprecisting that the annual exempt amount should be used, despite a fairly heavy hint to this effect being given in the question. Part (b) was another well answered section, with many candidates achieving maximum marks. Note: The examiner's report has been edited to remove comments on elements of the ACCA marking scheme Movrks tal Consideration pac in exes of cost & chargeable 14 Chargesdle amourt per share identifying avalladie annual exempe ammount 3, 05 Meaximurn mumber of shares that can be scid $5 44 {b) rccent Doposal proceeds 05 Cont +0 tdentitying BADR ap pies and Capital pans tax Nuel 2.5 Disposal proceeds Cost Capital gains tae COT savieg 05 14 40 05 64 Total KAPLAN SUBLISHING 10.0 459 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 507 507 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION 185 (FA2022) MICK STONE (ADAPTED) ie Walk in the footsteps of a top tutar I- | Key answer tips This 10 mark question requires the caleuletoon of the chargeable gains arising from the | disposal of two different assets by an individual. | In part te) the calculstions must be done assuming thet no reliefs are available, and then part (b) requires an expienation of the capital gains tex reliefs that might be available for each | disposal, You also need to state what further information you would require to cedde if the | reliefs are actually available, and whether there would be any restrictions on the amount of | relief available, The highlighted wards in the answer to part (b} belaw are key chrases that | markers are looking for. Tutor’s top tips | As you read through the question and think about your answer, it makes sense to consioer | ports (a) ond (b) ot the same time. However, it fs best to present your answer as two seporate | ports. {a) Chargeable gains — 2022/23 Tutar’s top tips | ifan item is not an alowable deduction {like the sepair to. the floor), then inctude it in your computation as £0 rether than just leaving it out, Ifyou don’t include the item the marker will _ not know if you hove left it owt deliberately or not so will net be able to give you a mork. Freehold warchouse £ Disposal proceeds Less; Cost Enhancement expenditure — Floor Chergeable gain 460 $22,090 (258,050) {0} 264,000 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 508 508 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Se Tutorial note The cost of replacing the worehouse’s fioor is revenue expenditure and Is therefor not deductible from proceeds when the warehouse is sold As.o repair, it would have insteod been | deductible from trading profits when the replacement was made. Rolling Ltd £ 3,575,000 (537,600) Dispasal proceeds Less: Cost (W} 3,137,400 Chargeable gain Working: Share poo! Number of Cost shares June 2613 December 2018 Purchase Bonus Issue {3:2} {500,000 = 3/2) September 2022 Disposal £960,000 x (700,000/1,250,000) &slance c/f {b} 500,000 960,000 750,000 a 1,250,000 960,000 {700,000} ($37,600) 550,000 423,400 Reliefs available Tutor's top tips Think about the conditions for the relevant reliefs to help you deckle velat extro information you would require in order to establish whether the relief is available. No cafculations are required so do nat waste time by including them, Freehold warehouse Possible relief * Rollover relief may bc available ms respect of the chargeable gain arising on the disposal of the freehold warchauss. KAPLAN PUBLISHING 461 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 509 509 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Further Information ® The acquisition date of the replacement warehouse 's required, since relief wil only be available if this js after 19 May 2021 (one year before the date of “f ies ehouse ts required, since relief wll be restr icted sof £522,000 have not been fly reinested ® BADR may be available in respect of the chargeable gain arising on the disposal of the shares in Rolling Ltd. Further information © Details OF Rolling Ltd's share capital are requirad, since relie? will only be available it Mick had the minimum required holding [and voting rights) of 5%. ° Details of any previous BADR claims made by Mick are required, since there is a lifetime limit of £1 million of gains. Examiner's report Part (a) was extremely vweell answered, with many candidates attaining full marks. The only aspect that consistently caused problems was on the disposal of the freehold warehouse, where expenditure on repairing the floor following a flood should have been treated as revenue expenditure —and therefore not 9 cost in calcudsting the chargeable gain. Part (b) caused @ few more problems, with many candidates wasting time writing about retiefs that were not applicable. ACCA marking scheme {al Mick Stone ~ Chargeable gains forks Freehold warehouse Disposal proceeds OS Cox o5 Revenue expenditure — Aor Rolling Lid Disposal peococds os us Share poct Purchase oS Bociws issue 1.0 Disposal os 40 [b> = Freehold warehouse ROR ray ke avaliable 1.0 Anqutition dake required 1D Cot pf replacement warehouse required Raling Utd BADR maybe available 1.0 molting Lid's share copital required 10 Previous BADR claims required 1.0 5.0 6.0 Total 462 $3.0 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 510 510 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS RUBY (ADAPTED) i TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Walk in the footsteps of a top tutor Key answer tips This 10 mark question tests the caleulation of CGT alternative share disposals, lability and the treatment of two In part fa) you are required to perform a basic CGT fiability colculetion ond state the due date in respect of « residential property disposal. In part {b} you are required to consider the impact on the CST lability of two alternative share disposals. This is an unusual approach by the examining team but the calculations themselves are straightforward, {e) Ruby —Capital gains tax lability re residential property Chargeable gain on investnent property Less: AEA 35,500 a £ 14,185 21,315 £ 47, 800 {12,300) x18% 25% 2,553 5,968 Capital gains tax liability 8,521 35,500 Due date 26 October 2022 (60 days after the dispusal]. Tutor’s top tips Part {a} of this question is straightforward so you should aim to score well in this section. Note that, wher calculatirg the payment on occcunt due in respect of the residential praperty, since there have not been any prior disposals in the tax year, the full AEA is available to reduce the chargeable gain, and the remaining basic rate band can be used to tax some of the taxeble goin ot 18%. Remember that higher CGT rates apply to a goin on residential property. Gains in the bosic rote bard ore taxed at 18%, rather than the 10% rate used for other gains, CGT anresidential property dispasals is due 60 days after the disnasal of the property. This peyment on account will then be deducted from the final licbility due on 3.1 Januery 2024, KAPLAN PUBLISHING 463 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 511 511 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) (b} Disposal of shareholding In Pota itd Quatifying Not qualifying é 37,308 E for BADR Ordinary shares in Pols Ltd Resi¢ential investment promerty Less: AEA Taxable gains for BADR 47 350 (0) 37,300 {12,300} 35,500 (€37,303 * 10%) (£35,500 x 28%) 3,730 5340 CGT liability Loss: Payment on account 13,670 (8,521) CGT payable 5,149 ia Tutorial note _ For the purposes of determining the rete of CGT payable the remaining basic rate band of | £14,185 ls setagainst the gain qualifying for BAQR of £37,300 even though this hos no effect | on the 10% rate. So CGT és payable ot 28% on the full amount of the residential goin not _ qualifying for BADR: Disposal of shareholding in Apio pic £ Ordinary shares in Aplo plc Sale proceeds Cost (W) £ 59,000 (87,200) Capital loss {28,200} Chargeable gain on residential investment property 87,800 Net chargeabie gains Annual exempt amount 19,600 {12,300) Taxable gains 7,300 Capital gains tax liability 464 (7,300 x 18%) Less: Payment on account 1,314 (8,521) CGT repayable (7,207) KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 512 512 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Working ~ Cost of shares in Aplo plc Average of the two quoted prices: (£2.12 + £2.24) x 1/2 = £2.18 £2.19 x 40,000 = £87,200 Examiner's report Part (a) of the question was well answered, requiringa calculation of the taxpayer's capital gains tex liability for the tax year if the investrnent property was their only disposal in that tax year, Part (6) The main problem here was that candxéetes did not appreciate that both disposals would Impact on the capital gains tax payable in respect of the disposal of the investment property. The disposal of the shares in the unquoted trading company [qualifying for BADR) would utilise the remaining basic rate tax band, meaning that the 28% rate was now spplkable, The capital loss orising on the disposal of the shores in the quoted trading company would be offset ageinst the chargeable gain on the investment property. Another common problem was the 50p nominal value of the shares in the quoted trading company. This did not- impact on the cakulation of the capital loss, aithough many candidates incorrectly divided their cost figure by twn. Note: This question has been adapted in light of the new syllabus and the rules regarding payments on account were not tested In the original question, § ACCA marking scheme Annual meret smount Capital gains tax at 13% Copital gains tax at 23% Due date — Cinposai of shareholding ii Pola itd Gains on Pola shares and resciential property AEA Capital gains tax at 16% Capikal gains tax at 28% Deduct payment on account Disposal of sharehalding in Apto pic Cost of shares ; Loss en sharervolding in Avie ote Gain on residential property AEA Capita! gains fax at 13% Dedect payment on sccount KAPLAN PUBLISHING esoseg (b] [slesen Ruby —Copitel gains tax Babiltty \€|sleeenss {a} 465 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 513 513 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 187 DALIEET w Wolk in the footsteps ofo top tutor I- | Key answer tips This 10 mark capital gains tax question tests share disposals, BADR and the calculation of after tex proceeds, Yoo are required to consider two alternative disposuls and decide which | one results in higher after tax proceeds. it is becomming more common tor examination questions to require the consideration of alternatives and the comparison of different outcomes 50 it |s important thet you practse | questions in this style before your examination Tutor’s top tips When colculoting ofter tex proceeds, stort with the grass proceeds received and deduct any _ expenses of sale, The most obvious deduction is the tax, but remember to fook out for ony | incidental amounts such as the legol costs in relation to the cottage. This will also be poyable | out of Daljeet's proceeds, therefore reducing the after tax proceeds available. (a) = After-tax proceeds Shares Disposal proceeds ABCpicshares £ Holiday cottage £ 100,600 129,000 Less: Seliing costs (2,000) Less: CGT (Wi)}[W3} (3,115) Net proceeds 97,484 (8,960) 103,040 Dalject Should sell the holiday cottage as this will generate the higher net proceeds. Tutor’s top tips | ifa question requires you to moke o conclusion there wil! be credit given for a sensible conclusion based on your warkings, even if errors in your colcuiations have led you toa | different conclusion from the model answer, 466 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 514 514 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS {W1) TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Disposal of ABC Ltd shares E Disposal proceeds 100,600 Less: Cost (W/2} (57,143) Chargeab®e gain 423,457 Loss: Anoual exempt amount (22,200) Taxable gain 31,157 Capital gains tax (£32,157 « 10%} 3,116 = Tutorial note The disposal of the ABC (td shores qualifies for BADR os for the 24 months prior to disposgl, | the following conditions are met: * ABC Ltd is o trading compony, - Datjeet is an employee of ABC Lia, and = Dualieet hos a shareholding of 25% (W2) Cost of ABC Ltd shares —share pool Number Purchase 7 June 2017 Cost E 1,000 £0,005 400 20,000 1,400 80,000 {1,000) (57,143) Rights issue 7 June 2018 (2,000 * 2/5} {£50 = 400} Disposal 31 December 2022 (£80,000 « 1,000/1,400) Balance </f KAPLAN PUBLISHING 400 22,857 467 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 515 515 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION (W3) {FA2022) Disposal of holiday cottage £ Disposal proceeds 110,060 Less: Selling costs (1,000) Net disposal proceeds 199,000 Less: Cost (84,700) Repairs 9 Chargeable gain Less: Annual exempt amount 44300 (12,300) Taxable gain 32,000 Capital gains tax (€32,000 x 28%) 8,960 id Tutorial note The repairs are not an allowable deduction in the CGT computation, as they afe a revenie | expense. | Daljeet is a higher rate taxpayer and no reliefs are available for this disposal, therefore the _ goin has been toxed at the higher rote for residential properties of 28%. (b) Inheritance tax Inheritance tax is charged ona transfer of value of chargeable property by achargeable person. A transfer of valve 's a gift of any asset which results in @ reduction In value of the donor's estate, Daljeet is going to sell either the A&C Ltd shares, or the holiday cottage at arm's length and receive consideration in return, He dees mot intend to make a gift of either asset, so there is no transfer of value for inheritance tax purposes. 468 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 516 516 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 COMPANIES — CHARGEABLE GAINS 188 FOGOLTD AND NETTALTD Key answer tips Part (a) requires a calculation of Fogo Ltd's net chargeable gains for the year. Remember that indexation aowance is frozen at December 2017, and you have been provided with the indexation factors for both the investment property and the warehouse so be sure to use the correct ones for each. indexation allowance cannot create or increase e loss. Part (b) is 2 two part question about rollover relief. The question is predominantly a written question with some small calculations required, so be sure to. explain your poirts clearly to maximize your marks. Part {c) is & standard TTP calculation question, focusing on non-trading boan relationship income, (2) Net chargeable gains Investment property £ Proceeds 625,000 Cost indexation allowance (500,000) {500,000 x 0.269) 125,000 (134,500) indexation cannot create ¢ loss 0 Warehouse £ Proceeds 560,000 Cost indexation allowance Gain KAPLAN PUBLISHING (100,000) {100,060 x 0,593) 460,000 (59,300) 400,700 469 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 517 517 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Not gains E Investrnent property Warehause 0 400,700 Shares (25,000) 375,700 (b) (i «© Group rollover relict Fogo Ltd and Netta Ltdare ina gains group because Netta Ltd is 275% subsidiary of Fogo Ltd. The warehouse is a qualifying asset and was used exclusively tn Fogo Ltd's trade, Netra Lid’s asset acquisitions took place within one year before and three years after the disposal. The fixed plant and machinery is a qualifying replacement asset which is usedin Netta Ltd’s trade, The shards are not qualifying business assets for rollover relief. (i) = Deferred gain The amount of the gain which can be deferred ss £390,700 (£400,700 — (£560,000 — £559,000). The deferred gain Is frozen and will become chargeable on the earllest of the following events; 3 = the plant and machinery is sold - the plant and machinery is no longer used in Netta Lid’s trade; and - ten years from the date of acquisition of the plant and machinery. Tutorial note The amount of the gain which con be deferredis restricted because not aff of the proceeds from the sole‘of the warehouse were reinvested in the fixed plant ond machinery. (c) Netta itd — Taxable total profits for the year ended 30 September 2022 £ 180,000 Draft tax adjusted trading profit Less interest payable on laan used to: Acauere fixed plant and machinery (27,500) Revised tax adjusted trading Income 470 152,500 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 518 518 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Non-trede loan relationship income £ 35,000 Non-trade joan interest recevable Non-trade loan Interest payable [22,500} 12,500 Taxable total profit 165,000 ACCA marking scheme Wet chargesble gains —Fogn Led: investment prosesty Weertrouse Shares Reasons for group reltover relief claien; TWO reason) Assets qeatifyeng as repisoement asset (Guin doferral cokuletion and expionstion: Caleutatier, Explanation ) BE (0 BE tb) 25 Weta Lod TTP calculation: Deduct Interest paid ta buy Pahl TLR recenable ATLA payable Total I@|BSE (a) Examiner's report The corporation tax question was genersily reasonably well answered. However, the marks fost on parts {>}}} and {it} meant that many candidates did not achieve a pass mark for this question. Fogo Ltd had one 100% subsidiary, Netta Ltd. Part {a) dealt with various capital disposals made by Fago Ltd during the year enced 30 September 2022. The two sections af part (b} revolved arounda group rollover relief claim based on replacement assets purchased by Netta Ltd. Part {c) then dealt with Netta Ltd’s Ioan relationships: Requirement [a}—5 marks Calculate the net chargeable gains of Fogo Lid, before any claim for group rofiover relief, for the year ended 30 September 2022. Fogo Ltd had made three disposals: An investment property: Here It was necessary to restrict the indexation allowance to the amount of gain, rather than creating @ capital loss. A freehold warehouse: This building had been used exclusively in Fogo Ltd's trade. indexation was also-available to be deducted from the gain. KAPLAN PUBLISHING 471 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 519 519 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAKATION {FA2022) A shareholding in an unconnected trading company: This resulted ina (given) capital kess. This section was where most candidates attempting this question did quite well. Even if they made the obvious mistake of not restricting the indexation allowance for the investment property, Question practice followed by a careful review of the correct answer will eliminate many of tha mistakes made by some candidates, such as basing the indexation allowance on the amount of gain {rather than cost), or (even worse) including just the indexed cost or the indexation allowance when computing the chargeable gains figure. Requirement (b)(i) - 4 marks in respect of the dispasal by Fogo Ltd of its freehald warehouse on 4 May 2022, gve TWO reasons why Fogo Ltd can make a group rollover relief claim and explain which of Nette Ltd's asset acquaitions will qualify and which will not qualify as a replacement asset, Netta Ltd had purchased fixed plant and machinery for use in its factory, and a 3% shareholding in a trading company. Although this section was often answered reasonably well, most answers lacked sufficient depth to achieve full marks. Many candidates appreciated that Netta Ltd was a 75% subsidiary of Fogo Ltd. Quite a few then mentioned that the warehouse had bean used In Fogo Ltd’s trada. The fact thar ®t was also 8 qualifying asset was usially missed, However, many candidates covered the one year before, three years after, qualifying period. As regards which acquisitions did, and-did not, qualify as a replacement asset, a significant minority based thelr answers on the loans used to acquire the asserts, or on Fogo Ltd's assets. Even those that based their answers on the correct assets, generally did not state the reason for the shares not qualifying because they were not business assets). Requirement {b) (li) — 3 marks in respect of the disposal by Fogo Ltd of its freahold warehouse on 4 May 2022, calculate the amount of the gain which can be deferred if a clairn for group rollover ralief is made and explain when the deferred gain will become chargeable. Again, candidates’ answers for this section were quite med. Many were able to identify the three relevant dates when, based on the earliest date, the gain would become chargeable given the reinvestment ina depreciating asset. Very few candidates, however, appreciated that the immediate gain (based on the amount of proceeds pot reinvested) was £560,000 — £550,000 = £10,000. This mean that only £400,700 = £10,000 » £390,700 of the chargeable gain on the freehold warehouse could be deferred. Requirement (c) = 3 marks Calculate the taxable total profits of Netta Ltd for the year ended 30 September 2022. Netta Ltd had trading interest payable, and non-trade interest recetable and payable. The requirement made it clear that candidates had to first adjust for the trading interest payable, and then bring in the total non-trade loan relationship income. This section was generally reasonably well answered, although quite a few candidates did not follow the guidance given on how to lay out their answers, 472 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 520 520 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABRLE GAINS QUESTIONS: SECTION 7 Some candidates added Interest payable and deducted interest receivable, The accrual for the interest receivable aise canfased some candidates (£25,000 was received during the year and £10,000 was accrued at the year-end}. As already mentioned, carefully reading the question, requirenyent and any guidance given will eliminate many of these basic mistakes. It is also important to clearly shaw which numbers are negative. Negative figures should be included by entering them as such an the spreadsheet. It is very difficult for markers to pick up negative figures if oll figures are shown positive, with the total calculated within the cell on the fines of Ai + A2-A3+A4, Itis also very easy to make mistakes using this approach. |f negative figures are entered, the total is simply SUM[A1:A4), LUNA LTD @ Wolk in the footsteps of o top tutor Key answer tips As this question concerns chargeable gains for companies, be careful to ensure that your answer does not refer to individuals, an annual exempt amount or capital gains tax. A company peys comporation tax on its net chargeab’e gains and there is no annual exempt amount avaiable for comparies. Part [a}is 9 deceptively straightforward written part about the indexation allowance and the fact that it cannet create nor increase a capital loss. The highlighted words in the answer ere the key phrases Unat matkers are looking for. Part [b) requires two caloulations In relation to share disposals, which could be attempted in either order. The first is a straightforward share disposal but potentially time consumingThe second is more demanding and involves 3 takeover with rnixed consideration, and a gain rising in respect of the cash received. {2) indexation allowance Tutor’s top tips The requirement for part {a} is split into two parts so make sure your answer clearly sets out your explanation for each part separately. . Where a company rakesa capital loss, then no indexation allowance is available because it cannot be used to increase a loss, ° KAPLAN Where the indexation allowence is greater than a company’s unindexed gain, then the gain is simply reduced to nil because the allowance cannot be used to create a loss. PUBLISHING 473 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 521 521 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION (b) ({FA26022) Chargeable gains — year ended 31 March 2023 Tutor’s top tips | In the absence of guidance on the split of marks you should assume equot weighting is given | between the two disposals, and allocate your time accordingly. tt would be easy te spend tac long on the first calculation you choose to. tackle and miss easy | Marks on the second. Pluto pic shares £ Disposal proceecs Less: Cost {WL} 53,400 (13,800) Unindexed gain Less: Indexed allowance (£16,312 — £13,800) (\W/1)} 39,600 (2,512) Chargeable gain 27,088 Asteroid pic takeover ~ gain in respect of cash proceeds received € Cash received on takeover. Less: Deemed cost {¥¥2} Chargeable gain $5,000 (38,500) 45,500 id Tutorial note | On a takeover, no chargeable quin arises in respect of the £1 ordinary shares in Comet ple | received as it is o poper for paper transaction. A mew share. pool is opened with the deen=d | cast calculated in respoct af the shores on takeover as the base cost. 474 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 522 522 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE CHARGEABLE GAINS QUESTIONS: SECTION 7 Workings {W1) Share pool ~ Pluto pic Number Purchase June 201% dad: Cost 16,000 Indexed cost 36,800 se indexation ta May 2013 2,348 £36,800 = 0.063 39,118 Less: Disposal May 2013 {£36,#00/£39,118 x 10,090/26,000) Add: (10,000) = (23,000) (24,449) 6,000 «=: 13,800 14,669 indexation to December 2017 (Note} 1,643 £14,669 » 0.112 16,312 Less: Disposal November 2022 (6,000) (13,800) = (16,342) Fa Tutorial note Remember to index the shore pool before eoch operative event (le. purchese ond-sale) or December 2017 if eariicr. fhe indexotion atowance was frozen at December 2017. {W2) Asteroid pic - takeover consideration and allocation of original cost Consideration receved MV of takeover consideration Allocation of indexed cost E £ 1 osdinary shares in Comet pir (10,000 x £4.50) 45,000 13,500 £33,009 = {£45 ,000/£110,000) Cash [10,000 * £6.50] £33,000 « (£65,000/£110,000) 6S,000 19,500 110,000 KAPLAN PUBLISHING 33,000 475 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 523 523 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK>: TAXATION (FA2022) Examiner's report Part (a) All that was required here wasa very short statement to the effect that the indexation allowance cannot increase of create a capital loss, but many candidates produced half-page explanations of everything to do with indexation and the use of capital losses. Part |b) Answers to this section were very mixed, There were many good answers, but other candidates struagied with the workings of the share pool, and the basis of allocating the indexed cost following a takeover, This type of question is where revision question practice is essential, since it will mean that the various rules are understood and also that answers cen be laid out as efficiently as possible. Thereis a standard approach to laying out the workings for a share pool, and candidates are advised ta follow this to save cantusion: ACCA marking scheme (a) Capital loss. [Agreaterthen unincexed gain Marks 1.0 1.0 2.0 fb} Petopic Disposal proceeds 5 Share pool working - parchase Junie JOEL Os ~ - indexation Ane 2011 — May 2023 G&posal May 2013 4.0. 1.D indexation May 2038— December 2017 d&posl Navemnber 2022 Asteroid pic Disposal proceeds Indexed cost attributable to cash element 1.0 os Lo 2.5 8.0 Total 476 320.0 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 524 524 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 Section 8 ANSWERS TO PRACTICE INHERITANCE TAX QUESTIONS PRACTICE SECTION A OBJECTIVE TEST QUESTIONS Exempt On 7 May 2022 he gave 100,000 shares Not exempt in Lahm Ltd to his wife, The shares have been valued at that date st £500,000 On 10 August 2022 he gave 50,000 shares in. Hummes Led to a discretionary trust. The shares have been valved at that date at £75,000 On. 6 October 2022 he gave £2,000 to his son on the occasion of his marriage On 9 February 2023 he gave £300 to hs daughter. The gift to Mario's wife is exempt as the inter-spouse exemption applies. The gift into the trust is a chargeable ffetime transfer and is therefore not exempt. A lifetime transfer up to £5,000 given from parent to child on the occasion of the child’s Marriage is exempt, so the gift of £2,000 to Mario's son is exempt. The gift to Mario's daughter is more than £250 and therefore the srnail gifts exemption does not apply. KAPLAN PUBLISHING 477 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 525 525 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION i191 (FA2022) C £ € 500,000 Gross chargeable amount WRB (2022/23) Less: GCTs-< 7 years before gift (31.5.11 —31.5.18) 325,000 (300,000) —_—_—_ Taxable amount 475,000 THT payable @ 40% Less: Taper relief 190,000 (31.5.18 — 31.10.22) (4-5 years before death) (40%} {76,000) THT payable on death 192 (25,000) 114,000 £23,250 cLT 20.5.2022 E 150,000 Transfer of value AE— Current yeor Previous year {2022/23} {2021/22} Chargeable ammount {3,000} {3,000) 144,000 NRB at date of gift 2022/23 Less; GCTs In 7 years pre-gift (20.5.2015= 20,5.2022}) 325,000 (274,000) —_—_ 478 ($1,000) Taxable amount $3,000 Lifetime |HT due (denor pays tax} (£93,000 x 25%} 23,250 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 526 526 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 193 TO PRACTICE INHERITANCE TAX QUESTIONS: SECTION B A 50,005 Transfer of value Annua! exemption 7 2022/23 (£3,000 — £2,005) ~ (1,000) (S00) 227/22 (£3,000 ~ £2,500) 48,500 Gross chargeable transfer =¥ Tutorial note The annual exemption is set against PETS, even if they never become chargeable. The annual exemption Is offset agolnst the earliest gift in the tox year automatically. The 2022/23 annual exemption is therefore reduced by the amount given to Sameer’s frend, as this was before the gift to the trust. The current yeer's onnue! exemption must be offset prior to the offset of any brought farward onrounts, Any unused amounts con be cortied forword one tax yeor, so the remaining annual exemption from 2021/22 can a!so be offset 194 Chargeable amount £ 30 November 2015 15 June 2016 o 347,000 Dateofdeath 1.2.2023 7 years before: 1.2.2016 | PET on 30 Novembar 2015 is more than 7 years before death so no IHT payable on death, PET 15.65.2016 Lass: Annual exemption Chargeable amount KAPLAN BUSLISHING — 2016/17 - 2015/36 £ 359,000 {3,090} {0) 347,600 479 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 527 527 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) Se Tutorial note Aithaugh the PET mode on 30 Novernber 2015 does not became chargeable on ceath, it still ulilises the onmuel exemption for the tax year of the gift {2015/76}. This anaual exemption |s therefore not available to reduce the PET mode In the tox yeor 2016/17 that becomes chargeabie on death. 195 A ia Tutorial note Optian A describes the comman inheritance tax planning technique of ‘skioping.a generotion’. This technique con moximise the inheritonce avaliable to future generations as o charae to inheritance tax wit’ only arise once, on the passing of the estote residue to heng’s grontchildren, if the residue had been left to Heng’s children ond they subsequently aifted the assets to thelr children, two charges to inheritance tax would arise. That being said, skippira a generotion would not reduce Meng‘s potentiol inheritence tox | Nobitty on death as legacies left ta both children and grandchildren are equally chargeable to inheritance tax, 196 D The correct answer Is D €22,000, This amount is comprised of two annual exemptions of £3,000-for the tax years 2022/23 and 2021/22 for each parent (total £12,000} plus the exemption for a gift in consideration of marriage given by a parent af £5,000, also from each parent (tata! £10,000). Many candidates chose B £10,000 which did not include the annual exemptions which each parent had available {since they. had made no other lifetime gifts). Also,a nurmber of candidates selected C £11,000, which was the total ammount of exemptions. available for one parent only 430 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 528 528 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE 197 INHERITANCE TAX QUESTIONS: SECTION B A E Gross chargeable amount £ 586,250. NRB (2022/23) Less: GCTs <7? years before gift (10.11.2010— 10.11.2017) 325,000 {0} (325,000) Taxadle amount 261,230 IHT payable @ 40% 104,500 Less: Taper relief (10,21.2017 ~ 16,7,2022) (4 -S years before death) (40%) (41,800) ‘62,700 (52,250) Less: tHT pald in lifetime IHT payable on death 10,480 198 Inheritance tax payable 20 February 2012 22 March 2015 30 September 202% ¥ 24 Decernber 2022 Date of death: 20.1.2023 7 years before: 20.1.2016 The gifts to the son and the discretionary trust are more thar) 7 years before death so no INT 15 payable as 2 result of deat. The gift to the doughter is a PET which has become chargeable a: a result of death, The avaiable nil rate. band is fully used by the CLT (gift to the trust) made in the 7 years before the date of the gift, so there will be an FHT liability on the gift to the daughter. The gift to the wife is: exempt under the inter-spouse exemption. KAPLAN PUBLISHING 431 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 529 529 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX—UK> TAXATION 199 {FA2022) D E Value of estate 890,000 Less: Legacy to wife (260,000) Legacy to brother (120,000) 510,060 Less; Inheritance tex peyable Residue of estate after inhertance tax 200 (252,000) 258,000 DE id Tutorial note | Repayment und interest-only mortouges ore deductible. | Gambling debts owed to a friend are not legaily enforceable and therefore not deductible. If the gambling debt wos legally enforceable then it would be deductible, A verbol pronyse ta pey @ frieod'’s debt is nat legally enforceable and therefore not deductible, | Funeral expenses and crudit card debts ore deductible. 201 £350,000 £ House (£545,000— £145,000) Life insurance policy (proceeds received} 400,000 350,000 Less: Spousal legacy 750,060 (400,000) Chargceabic amount 350,000 isd Tutorial note | Interest-only mortgages ore deductible in the estote ogainst the value of the property they | ave secured against. 482 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 530 530 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 202 TO PRACTICE INHERITANCE TAX QUESTIONS: SECTION B 8B 390,000 70,000 60,000 (25,000) Houte Chattels and cash Shares held in an ISA Income tax owed Less: Spousal legacy 495,000 (100,000) Chargeable amount 395,000 Total estate <j Tutorial note Transfers between spouses ore exempt fram inhentance tox in lifetime end on death. Tax liabilities of the deceased are atiowable deductions fram the death estate with the exception of the inheritance tax due on the deoth estate. Assets held in.an ISA are exempt assets for capita! gains tax but not jor inheritance tax. They ore o conmmon feature in death estote questions for this reason! 203 £270,400 Death estate £ Gross chargeable estate NRB at death (2022/23) Add: SNRB (2022/23) 325,000 175,000 —_—— £ 1,176,000 ($00,000) Taxsdie amount 676,000 IMT on chargeable estate (£676,000 x 40%) 270,400 ied Tutorial mote Where on indiviewal’s moin residence is included in his/her estate ond passed on ta o direct descendant, the ANRS of £175,000 for the value of the property if jower) is available to offset against the estate in addition to the standard nil rete band. KAPLAN BUSLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 531 531 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK>: TAXATION 204 (FA2022) £114,000 £ 205 Value of estate before transfer (£20 x 7,500) 150,000 Value of estate after transfer {£8 x 4,500) {36,000) Transfer of value 114,000 H Lifetime tax Additional tax on death 15 March 2019 31 March 2019 | 30 April 2019 15 March 2023 | 31.March 2028 | 30 April 2023 For. a CLT made between 6 April and 30 Septomber the fifatime inheritance tax & due by 36 April in the folowing year The additional tax. due.on CETs as month of death: a-result of death is. due six months after the end of the 206 Pays tax Suffers tax Neither peys nor suffers tax ‘Sister v v | Daughter | Executor ¥ inheritance tax due on the death estate is paid by the executors but is suffered/borne by the residual legatee (Le, the daughter). 207 True False | An advantage of giving an appreciating asset away during | lifetime is that the increase In value up to the date of death ¥ | will not be subject to inheritance tax | For capital gains tax purposes lifetime gifts are taxable but y | gifts on death are.not _ Ona lifetime gift mace more than three years before death, | taper retlef will reduce the amount of the gift chargeable to v | inheritance tax on death Taper relief reduces the IHT payable on death provided the donor survives for more than’ three years following the gift; it does not reduce the chargeable amount on death, 484 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 532 532 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INHERITANCE TAX QUESTIONS: SECTION B 208 £15,200 The correct answer is £15,200. Firstly, 8 review of the lifetime gifts at time of death shows that the chargeable lifetime transfer (CLT) In October 2015 is more than seven years before death so that falls out of consideration, The CLT in June 2019 is within seven years of death so that will have to be reassessed on death. The WRB on death is £325,000, less the CLT in June 2019 of £118,000, gives a remaining NRB of £207,000. Death liability is therefore the chorgeable death estate of £245,000 less the remaining NRB after reviewing the lifetime transfers of £207,000 givinga taxable estate of £38,000 at the death rate of 40% » £15,200. 209 ¢€ Examiner's report This question tested candidates’ knowledge of the payment of IHT on a chargeable lifetime transfer (CLT) toa trust, The donor, Sandeep, is primarily lable for the tax due on a CLT and the due date is the later of the follawing: {i} St months after the end of the month of transfer {il) 30 April after the end of the tax year of transfer The later of these dates Is therefore 31 May 2023 and so the correct answer was C. Many candidates were able to select the correct date, but were less successful in determining who Was primarily ladle for payment. Tax administration and the payment of tax are important aspects of the syllabus and candidates are reminded to devote sufficient attention to these topics when preparing for the TX UK exam. KAPLAN PUBLISHING ass https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 533 533 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK> TAXATION {FA2022) PRACTICE SECTION B OBJECTIVE TEST CASES 210 LEBNA AND LULU (ADAPTED) Key answer tips This IHT question starts by covering the transfer of the unused nil rate band and residence nil rate band from a spouse. | Question three requires knowledge of the diminution in value rule for inheritance tex. |The fourth question was straightfonward, The correct taper relief percentage is included in the tax rates and allawances and the |HT payment due date is commons tested. The final question concerned the small pfts exemption, ogain, this is commonly tested and | provides easy marks. 1 B £ Lulu’s NRB 325,000 Specific lepacy {to brother) PET within seven years of death (40,000) (80,000) Unused NRB available to transfer (Note) 205,000 Note: The unused percentage of the nil rate band is available to transfer to a spouse, The ni| rate banc was the seme amount In the tax year of death of both Lulu and Lebna, therefore the unused amount is the same asthe unused percentage of the current nil rate band, The avaliable RNRB ts the lower of: - Lebna’s RNB of £350,000 (W1) + The value (net of repayment mortgage) of the main residence of £188,000 [(W2) Working 1-RNRB £ Lebna’s RNAB 100% Luiu’s 2NRB {Note} 175,000 175,000 Total RNAB available to Ledna 350,000 Note: The unused percentage of the RNRB is available to transfer to a spouse. Lulu died before 5 April 2027, therefore her full RNRB is available to trans‘er to Lebra, 486 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 534 534 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INHERITANCE TAX QUESTIONS: SECTION & Working 2 ~ Value of main residence Value of Leone's main residence Less: Outstanding interest-only martgage Total RNRB available to Lebna Value pre transfer (100,000 x £7.10) Value past transfer (40,000 x £4.29) 188,000 710,000 (268,000) Less: AF CY 542,000 (2,000) AE P¥ (3,000) Transfer of value Gross chargeable arnount 4 345,000 (252,000) 536,000 A Desth & between five und six yesrs of when the PET was made, so taper relief of 60% s available. The due date forthe |HT Is six months after the end of the month in which the donor dies. 5 ¢< The gifts of £275 {£85 + £190) to the same person total more than the £250 limit. The aift of £490 also exceeds the exemption, 211 TOM (ADAPTED) @ Walk in the footsteps of 0 top tutor Key answer tips This is @ typical IMT quéstion cavering various aspects of lifetime gifts and then the death estate. The question Goesn’t test any peripheral topics and therefore should be relatively straightforward KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 535 535 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION (FA2022) 1 c £ Chergeable emount (after a exemptions) NRB at date of gift Less: GCTs < 7 years before gift 325,009 (6) NRB available (325,000) Taxable amount. 125,000 IHT payable x 25% 32,250 Gross chargeable amount (£450,000 + £31,250) 2 E 450,000 481,250 £3,000 Transfers of value Less AE Less: AE PETs 20 Dec 2014 E 5500 —2014/15 (3,009) — 2013/14 b/f {2,99) —2015/16 art 20 Feb 2016 £ (3,000) ~ 2014/15 b/f 9° ee Tutorial note The AE: - exempts the first £3,000 of Kfetinie transfers in any one tax year — is applied chronologically to the first gift in the tax year, then (if there is ony left) the second gift and se evr - must be appked to the first gift eoch year, even if the first gift is a PET ond never becomes chargeable. _ Any unused AE con only be corried forward one tax year, 3)C«*e 4a8 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 536 536 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS TO PRACTICE INHERITANCE TAX QUESTIONS: SECTION B 4 Net value 1 50% share ine recehorse 2 Cash winnings £40,000 Main residence £375,000 3 £150,000 Tutor top tips Gambling winnings and wasting chattels (¢.9. a racehorse) ore exempt assets for the purposes of copito! gains tex, Itis common for these types af assets to be included ino death estate in an examination question to test if you have remembered that there are no exemot assets for inheritance tox. Therefore, It is important that you have o clear understonding of whot assets or income are exempt for each tex! Note that the RNRB is appied to the entire estate not the mainresidence, so the value needed here is the morket value of £875,000 less the outstanding repayment mortgooe of £500,000. 5 c E Valuc of estate RNRB available NRB at death Less: GCTs in previous 7 years > £325,000 (Note) £ 2,000,000 (175,000) 325,000 (325,000) N&B available Toxsbie ammount \HT * 40% (0) 1,875,000 730,000 ia Tutorial aote There is po ni rote band remoining 9s the gross chargeoble transfer on 20 Februcry 2016, which (5 withia the sever yeors before death, is greater than £325,000, Tom is leoving his main residence to his children, therefore the odditional residence av rote bang of £175,000 ts available to deduct from the estate, Note thot this ls not reduced by grass chanjgeachle transfers in the seven pears before death. KAPLAN PUBLISHING 489 https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 537 537 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 TX-UK: TAXATION 212 (FA2022) AFIYA (ADAPTED) i Wolk in the footsteps of a top tutor | Key answer tips This (HT question starts by looking at two lifetime gifts, [ome PET aud one CLT). It then moves on to consider whatis included in the death estate. The lasttwo questions cover the transfer of the unused nil rate Sand from the spouse and the due dates of Gfetime tax and tax on the | death estate, 1 c Working: PET— 14 September 2017 € Value of shares held before the transfer (8,000 « £8) Less: Value of shares held after the transfer {1,509 » £3) 64,000 (4,500) Transfer of value 59,500 Less: AE- 2617/18 (3,000) = 2016/17 (3,000} Gross chargeable transfer ‘53,500 Tutorial note The tass to the donor jor dimimition in volue) principle appfies when coicutating the transfer of value for [HT pucpases, This is porticularly relevant when valuing shares where 9 mojority | Shareholding hos a higher value per share than a minanity shareholding in a company, The transfer of volue is the amount by which Afiya’s estate has diminished and not the market | value of the asset gifted. | Prior to the transfer Afiyo had 8.000 shares (on 30% (8, 000/20,008) shareholding) in the | compony and the shores ore valved at £8 per shore, After the transfer Afiya owns 1,500 shores (a 15% shoreholding) and the shares ore volued ot | £3 per shore, 490 KAPLAN PUBLISHING https://learn.mykaplan.co.uk/d2l/common/assets/pdfjs-d2l-dist/1.0…d-pdf&fullscreen=d2l-fileviewer-rendered-pdf-dialog&height=718#0 https://learn.mykaplan.co.uk/d2I/common/assets/pdfjs-d2|-dist/1.0...d-pdf&fullscreen=d2I-fileviewer-rendered-pdf-dialog&height=718#0 Page Page 538 538 of of 744 744 PDF.js PDF.js viewer viewer 06/03/2023, 06/03/2023, 19:35 19:35 ANSWERS 2 TO PRACTICE INHERITANCE TAX QUESTIONS: SECTION 8 £48,750 Working: CLT —27 January 2022 £ Transfer of value (after al! exemptions) NRB at date of gift Less: GCTs in last 7 years (CLTs ony} € 400,000 325,000 (126,005) (205,000) Taxable arnount Lifetime IHT |donor pays tax) 195,000 {x 25%) 48,7

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