f6 - final

Final Assessment

ACCA FINAL ASSESSMENT

Taxation

JUNE 2009

QUESTION PAPER Time allowed 3 hours 15 minutes Reading and planning: 15 minutes Writing: 3 hours Answer all questions Tax rates and allowances are on pages 3 – 5 Do not open this paper until instructed by the supervisor

This question paper must not be removed from the examination hall

Kaplan Publishing/Kaplan Financial

KAPLAN PUBLISHING of 13

ACCA F6 Taxation

© Kaplan Financial Limited, 2008 All 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.

of 13 KAPLAN PUBLISHING

Final Assessment

Supplementary Instructions 1. Calculations and workings need only be made to the nearest £. 2. All apportionments should be made to the nearest month. 3. All workings should be shown.

The following tax rates and allowances are to be used INCOME TAX

%

Basic rate £1 to £34,800 20

Higher rate £34,801 and above 40

Personal allowances

Personal allowance Standard £6,035

Personal allowance 65 – 74 £9,030

Personal allowance

75 and over £9,180

Income limit for age related allowances £21,800

Cars benefit percentage The base level of CO2 emission is 135 grams per kilometre Car fuel benefit The base level figure for calculating car fuel benefit is £16,900 Personal pension contribution limits Annual allowance £235,000 The maximum contribution that can qualify for tax relief without any earnings is £3,600


ACCA F6 Taxation

Capital allowances

Plant and machinery %

Writing down allowance 20

Special rate expenditure


First year allowance

– Low-emission motor cars [CO2 emissions do not exceed110 grams per kilometre]

100

Annual investment allowance £50,000

Industrial buildings


CORPORATION TAX

Financial Year 2006 2007 2008

Small companies rate 19% 20% 21%

Full rate 30% 30% 28%

Lower limit £300,000 £300,000 £300,000

Upper limit £1,500,000 £1,500,000 £1,500,000

Marginal relief fraction 11/400 1/40 7/400

Marginal relief (M − P) × I/P × Marginal relief fraction VALUE ADDED TAX Registration limit £67,000 Deregistration limit £65,000


Final Assessment

CAPITAL GAINS TAX Annual exemption Individuals £9,600 Rate of CGT 18% Entrepreneurs’ relief £1,000,000 NATIONAL INSURANCE (not contracted out rates) % Class 1 Employee £1 to £5,435 per year Nil

£5,436 to £40,040 per year 11.0 £40,041 and above per year 1.0

Class 1 Employer £1 to £5,435 per year Nil

£5,436 and above per year 12.8 Class 1A 12.8 Class 2 £2.30 per week Class 4 £1 to £5,435 per year Nil

£5,436 to £40,040 per year 8.0 £40,041 and above per year 1.0

RATES OF INTEREST Official rate of interest: 6.25% Interest on underpaid tax 7.50% (assumed) Interest on overpaid tax 3.00% (assumed)


ACCA F6 Taxation

Answer all questions QUESTION 1 Mirabelle Martineau has been a self-employed landscape gardener since I July 2008.She is 46 years old. Her profits, adjusted for income tax but before capital allowances, were:

£ 1.7.08 – 30.6.09 25,000 1.7.09 – 30.6.10 50,000 1.7.10 – 30.9.11 35,000

Capital equipment was purchased as follows: £ 1.8.08 Mini-tractor 7,000 1.9.08 Car 14,000 1.10.08 Mini-bulldozer 9,000

None of the assets are to be treated as ‘short-life’ assets. Private usage of the car was estimated at 25%. Mirabelle ceased trading on 30 September 2011 and sold the assets for the following amounts:

£ Mini-tractor 4,000 Car 8,000 Mini-bulldozer 4,500

Mirabelle’s only chargeable asset for capital gains purposes was goodwill. This realised a gain in 2011/12 of £16,667 after Entrepreneurs’ relief but before the annual exemption.

She also received dividend income of £5,850 (net) in 2011/12. Required: (a) Calculate the amounts assessed to income tax as trading income on Mirabelle for the

years 2008/09, 2009/10, 2010/11 and 2011/12. (10 marks) (b) Calculate the income tax payable and capital gains tax payable by Mirabelle for

2011/12. (5 marks) (c) Note that in answering part (c) of the question you are not expected to take account

of any of the information in parts (a) and (b) above.

Mirabelle has been registered for value added tax (VAT) since starting in business. She has the following information for the quarter ended 30 June 2011.

(1) She has issued sales invoices of £25,000 for standard rated supplies and £3,000 for zero rated supplies. Both figures are VAT exclusive. Mirabelle always gives a 5% discount for prompt payment.


Final Assessment

(2) Her standard rated expenses (including VAT) for the quarter were as follows:

£

Car repairs and servicing 705 (Mirabelle uses the car 25% privately)

Repairs to the mini tractor 470

Entertaining a major customer 175

Staff Christmas lunch (for staff only) 141

Other expenses (all allowable for VAT) 2,350

Calculate the amount of VAT payable by Mirabelle for the quarter ended 30 June 2011. Give brief explanations for your treatment of all items. (7 marks)

(d) Advise Mirabelle of the VAT implications of ceasing to trade on30 September 2011. (3 marks)

Assume that 2008/09 rates and allowances continue and assume VAT is 17½%.

(Total 25 marks)


ACCA F6 Taxation

QUESTION 2

Spectrum Ltd is a computer manufacturer. The company’s summarised profit and loss account for the year ended 31 March 2009 is as follows:

£ £

Gross profit 815,200 Operating expenses

Impaired debts (Note 1) 8,390 Depreciation 84,200 Gifts and donations (Note 2) 9,330 Professional fees (Note 3) 12,400 Repairs and renewals (Note 4) 128,200 Other expenses (Note 5) 420,520 _______

(663,040)_______

Operating profit 152,160 Profit from sale of fixed assets

Disposal of factory building (Note 6) 78,100 Income from investments

Loan interest (Note 7) 15,410 _______ 245,670 Interest payable (Note 8) (48,600)_______

Profit before taxation 197,070 _______ Note 1 – Impaired debts Impaired debts are as follows:

£ Trade debts recovered from previous years (2,680) Trade debts written off 6,970 Loan to a customer written off 4,100 _____

8,390 _____ Note 2 – Gifts and donations

Gifts and donations are as follows: £

Gifts to customers (rucksacks costing £15 each displaying Spectrum Ltd’s name)

1,080

Donation to a recognised political party 5,200 Gifts to customers (bottles of champagne costing £20 each) 1,720 Long service award to an employee 250

Donation to a national charity (made under the Gift Aid scheme) 800 Donation to a national charity (not made under the Gift Aid scheme) 200 Donation to a local charity (Spectrum Ltd received free advertising in the charity’s magazine)

80 _____

9,330 _____


Final Assessment

Note 3 – Professional fees Professional fees are as follows:

£

Accountancy and audit fee 5,400 The cost of registering the company’s trademark 800

Legal fees in connection with the acquisition of a 25-year property lease

2,100

Debt collection 3,200 Legal fees in connection with a court action for not complying with health and safety legislation

900 ______

12,400 ______ Note 4 – Repairs and renewals The figure of £128,200 for repairs and renewals includes £41,800 for replacing the roof of an office building, which was in a bad state of repair, and £49,400 for extending the office building. Note 5 – Other expenses Other expenses include £2,160 for entertaining suppliers. The remaining expenses are all fully allowable. Note 6 – Disposal of office building The profit of £78,100 is in respect of a freehold factory building that was sold on 20 November 2008 for £276,000. The factory was purchased on 18 November 1998 for £197,900. Assume the indexation allowance from November 1998 to November 2008 is £58,000. The building has always been used by Spectrum Ltd for industrial purposes. Note 7 – Loan interest received The loan interest is in respect of a loan that was made on 1July 2008. Interest of £11,360 was received on 31 December 2008, and interest of £4,050 was accrued at 31 March 2009. The loan was made for non-trading purposes. Note 8 – Interest payable The interest payable is in respect of a debenture loan that is used for trading purposes.


ACCA F6 Taxation

Note 9 – Plant and machinery On 1 April 2008 the tax written down values of plant and machinery were as follows:

£

General pool 10,000 Expensive motor car 17,500 Short-life asset 2,300

The following transactions took place during the year ended 31 March 2009:

Cost/(proceeds) £

14 June 2008 Sold the expensive motor car (33,000) 6 October 2008 Purchased a motor car 16,000 1 November 2008 Sold the short-life asset (460) 10 December 2008 Purchased equipment 7,800

The expensive motor car sold on 14 June 2008 for £33,000 originally cost £31,100. The motor car purchased on 6 October 2008 is a low emission motor car (CO2 emission rate of less than 110 grams per kilometre). Required: (a) Calculate Spectrum Ltd’s tax adjusted trading profit for the year ended 31March

2009. Your computation should commence with the profit before taxation figure of £197,070. (17 marks)

(b) Calculate Spectrum Ltd’s profits chargeable to corporation tax for the year ended

31 March 2009. (5 marks) (c) It has now been discovered that Spectrum Ltd had acquired a 100% shareholding in

Rainbow Ltd on 1 April 2008. Rainbow Ltd made a tax adjusted trading loss of £46,800 for the year ended 31 March 2009 but was profitable in the following year. On 15 March 2009 Rainbow Ltd purchased a new freehold office building for £270,000 that is to be used 100% for trading purposes.

(i) State the effect on Spectrum Ltd’s profits chargeable to corporation tax for

the year ended 31 March 2009 of the acquisition of Rainbow Ltd, assuming all beneficial elections and claims are made in respect of Rainbow Ltd’s trading loss and its acquisition of the office building.

(4 marks) (ii) Compute the corporation tax liability of Spectrum Ltd for the year ended

31 March 2009 assuming the beneficial claims and elections identified in (i) above are made. (4 marks)

(Total: 30 marks)


Final Assessment

QUESTION 3 (a) Sam sold her house for £165,000 on 31 March 2009. She had purchased the house

on 1 January 1995 for £60,000 and had spent £25,000 on structural alterations in June 1996. Sam had let one-third of the house for residential purposes from 1 September 1996 until it was sold. Sam did not own any other house and had lived in the house throughout her period of ownership.

Required: Calculate Sam's capital gain for the year 2008/09. (7 marks)

(b) Eloise purchased a painting for £5,000 in July 1985 and sold it at auction for £8,200

in December 2008. She paid the auctioneer a set fee of £150. Required: Calculate Eloise’s capital gain for 2008/09. (2 marks) (c) In March 1987, Harry purchased a cottage, used as a holiday home and not as a

principal private residence, for £38,000. In November 2008, when its value was £150,000 he gave the cottage to his wife Helga. In March 2009 Helga sold the cottage for £325,000.

Harry and Helga were living together throughout the period. Required:

Calculate the amount of any capital gains arising on these transactions and any capital gains tax payable assuming Harry and Helga have no other capital gains in 2008/09. (3 marks)

(d) Emma purchased an antique tapestry on 1 April 2002 for £12,500. The tapestry was

damaged on 1 May 2008 when it was worth £30,000. After the damage the tapestry was worth £5,000.

On 1 July 2008 insurance proceeds of £30,000 were received, which were not used to restore the tapestry. Required: Calculate the chargeable gain and revised base cost in respect of the tapestry. (3 marks)

(e) Alpha Ltd is a small unquoted trading company. Kiren purchased a 10% shareholding in Alpha Ltd for £32,000 in April 2006, when she went to work for the company as its marketing director. In December 2008 she left the company and sold her shares for £88,000. Kiren has made no other disposals in 2008/09.

Required: Calculate Kiren’s capital gains tax payable for 2008/09 and state the due date of

payment of this liability. (5 marks)

(Total: 20 marks)


ACCA F6 Taxation

QUESTION 4 Marcel was born on 15 August 1937. His income for 2008/09 excluding his property income was as follows:

£

Individual savings account interest 150 Occupational pension (gross) 3,750 State retirement pension 3,500 Interest on British Government stocks 2,000 Bank interest (net) 3,000

In addition to the above income, Marcel owns two properties which are let out. The following information relates to the tax year 2008/09. Property 1 This is a freehold house let out furnished. The weekly rental is £150 and the property was let for 45 weeks during 2008/09. In this period Marcel paid insurance of £280, council tax of £900 and incurred costs of £1,800 for redecorating the property. He claims wear and tear allowance for this property. Property 2 This is a freehold office building which is let unfurnished. The property was purchased on 1 August 2008 and immediately let to X Ltd. Marcel granted X Ltd a 7 year lease in return for a premium of £4,000 and a monthly rent of £1,000 payable in advance on the first day of each month. Marcel paid loan interest of £4,200 for this property during 2008/09. On 1 August 2008 he paid an insurance premium of £1,200 to insure the property until 31 July 2009. Required: (a) Calculate Marcel’s property business profit for 2008/09. (5 marks) (b) Calculate the income tax payable by Marcel for 2008/09. (5 marks) (Total: 10 marks)


Final Assessment

QUESTION 5 Loser Ltd’s results for the year ended 30 June 2006, the nine-month period ended 31 March 2007, the year ended 31 March 2008 and the year ended 31 March 2009 are as follows:

Year ended

30 June 2006

Period ended

31 March2007

Year ended

31 March 2008

Year ended

31 March 2009

£ £ £ £

Trading profit/(loss) Property business profit/(loss) Capital gain Gift Aid paid

113,400 (3,600)

– (9,600)

(25,700) 4,500 7,000 (800)

36,400 8,100

– (1,200)

(78,300) 5,600

– (1,100)

The company has trading losses brought forward as at 1 July 2005 of £15,000, and capital losses of £10,000. Required: (a) State the factors that will influence a company’s choice of loss relief claims. You are

not expected to consider group relief. (3 marks) (b) Assuming that Loser Ltd claims relief for its losses as early as possible, calculate the

company’s profits chargeable to corporation tax for the year ended 30 June 2006, the nine-month period ended 31 March 2007, the year ended 31 March 2008 and the year ended 31 March 2009.

Your answer should show the amount of unrelieved losses as at 31 March 2009. (10 marks) (c) Explain how your answer to (b) would have differed if Loser Ltd had ceased trading

on 31 March 2009. (2 marks) (Total: 15 marks)


Final Assessment

ACCA

Paper F6

Taxation June 2009

Final Assessment – Answers

To gain maximum benefit, do not refer to these answers until you have completed the final assessment questions and submitted them for marking.

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ACCA F6 Taxation

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Final Assessment

ANSWER 1 (a) Trading income assessments

Tax year Basis period Amount assessable £

2008/09 1.7.08 – 5.4.09 5,175 (W1) 2009/10 1.7.08 – 30.6.09 6,900 2010/11 1.7.09 – 30.6.10 48,320 2011/12 1.7.10 – 30.9.11 37,605 (W2)

Note: Answers to parts (b) to (d) are shown after these workings which are relevant to

part (a). Workings

(W1) £6,900 (W4) × 129 = £5,175 (this amount is also the ‘overlap’ profits)

(W2) £42,780 (W4) less ‘overlap’ profits £5,175 = £37,605 (W3) Capital allowances computation

AIA Pool Car Bus use 75%

Claim

£ £ £ £

1.7.08 – 30.6.09 Additions no AIA or FYA 14,000 Additions with AIA (£7,000 + £9,000) 16,000 AIA 100% ( 16,000)_____ Nil 16,000

WDA (20%) _____ (2,800)_____ 75% 2,100

Tax WDV c/fwd Nil 11,200 _____ Total allowances 18,100 _____ 1.7.09 – 30.6.10 WDA (20%) _____ (2,240)______ 75% 1,680 _____ Tax WDV c/fwd Nil 8,960 Total allowances 1,680 _____ 1.7.10 – 30.9.11 Disposals (8,500)_____ (8,000)______

Balancing charge (8,500) (8,500) Balancing allowance _____ 960 ______ 75% 720

______

Net balancing charge on cessation (7,780)______


ACCA F6 Taxation

(W4) Profits for accounting periods

Adjusted profits CAs Net £ £ £

1.7.08 – 30.6.09 25,000 (18,100) 6,900 1.7.09 – 30.6.10 50,000 (1,680) 48,320 1.7.10 – 30.9.11 35,000 7,780 42,780

(b) Income tax computation – 2011/12

Total Other Dividends £ £ £

Trading income 37,605 37,605 Dividends (£5,850 × 100/90) 6,500 ______ ______ 6,500 _____ Total income Personal allowance

44,105 (6,035)______

37,605 (6,035)______

6,500 _____

Taxable income 38,070 ______ 31,570 ______ 6,500 ______

Income tax £ £ 31,570 at 20% (other income) 6,314 3,230 ______ at 10% (dividends) 323

34,800 3,270 a______ t 32.5% (dividends) 1,063

38,070 ______

Income tax liability _____ 7,700

Tax suffered Dividends (£6,500 × 10%) (650) _____ Income tax payable

7,050 _____

Capital gains tax payable – 2011/12

£ Gain after Entrepreneurs’ relief 16,667 Less Annual Exemption (9,600)

_____ 7,067 _____

Capital gains tax payable at 18%

1,272 _____


Final Assessment

(c) VAT payable for the quarter ended 30 June 2011

£ Note

Output VAT Standard rated supplies (95% × £25,000 × 17.5%) 4,156 1 Zero rated supplies (VAT at 0%) Nil Input VAT Car repairs (7/47 × £705) (105) 2 Repairs to mini tractor (7/47 × £470) (70) 3 Entertaining customer Nil 4 Staff Christmas lunch (7/47 × £141) (21) 5 Other expenses (7/47 × £2,350) (350) _____

VAT payable 3,610 _____

Notes (1) Where a discount is offered, VAT is calculated as if the full discount had been

taken irrespective of whether the customer does actually take the discount. (2) No apportionment of motor expenses is necessary provided there is some

business use of the car. (3) Normal business expense. (4) VAT on entertaining of customers is irrecoverable. (5) VAT on staff entertaining is recoverable

(d) Deregistration

Mirabelle is required to deregister when she ceases trading. She must notify HMRC within 30 days of cessation i.e. by 30 October 2011 At the date of deregistration there is a deemed supply of all stock and assets on hand on which input VAT was reclaimed. This is treated as a supply at replacement cost. The business has to account for output tax on this deemed supply although it can be ignored if it is no more than £1,000.


ACCA F6 Taxation

MARKING GUIDE

Marks

(a) 1.7.08 – 30.6.09 Car WDA 1 Private use restriction 1 AIA expenditure of £7,000 + £9,000 ½ AIA at 100% ½ 1.7.09 – 30.6.10 WDA 1 1.7.10 – 30.9.11 Balancing charge 1 Balancing allowance 1 Tax adjusted profits for accounting periods 1 Profits for tax years 2008/09 2009/10 and 2010/11 2011/12 with reduction for 'overlap' profits 3 __

10 (b) Savings income grossed up 1 Personal allowance ½ Other income at 20% 1 Dividend income − basic rate band at 10% ½ Remainder of dividends in higher rate band ½ Tax suffered on dividends ½ Capital gains annual exemption ½ Capital gains tax payable at 18% ½ __

5 (c) Output tax – standard rated sales including discount 1 Output tax – no VAT on zero rated sales ½ Input tax car repairs 1 Mini tractor repairs ½ Entertaining customers ½ Entertaining staff ½ Other expenses ½ Notes and explanations 2½ 7 (d) Need to deregister 1 30 day time limit for notification 1 Deemed supply of stock and assets 1 3 __ TOTAL 25 __


Final Assessment

ANSWER 2 (a) Tax adjusted trading profit for the year ended 31 March 2009

£ £

Profit before taxation 197,070 Loan to customer written off 4,100 Depreciation 84,200 Donation to political party 5,200 Gifts to customers – food hampers (Note 1) 1,720 Gift Aid donation (Note 3) 800 Donation to national charity 200 Legal fees in connection with the purchase of a new lease (Note 4)

2,100

Legal fees in connection with the court action 900 Office extension (Note 5) 49,400 Entertaining 2,160 Disposal of office building 78,100 Loan interest received 15,410 Capital allowances plant and machinery (working) 14,040 Industrial buildings allowance (Note 7) _______ Nil _______ 347,850 107,550 _______

(107,550)_______

Tax adjusted trading profit 240,300 _______

Notes:

(1) Gifts to customers are an allowable deduction if they cost less than £50 per

recipient per year, are not of food, drink, tobacco, or vouchers exchangeable for goods, and carry a conspicuous advertisement for the company making the gift.

(2) The long service award is deductible in calculating the trading profit. (3) The Gift Aid donation is a deduction from total profits in the corporation tax

computation. (4) The costs of registering a trademark are allowable. The costs of taking out a new

lease (rather than the renewal of an existing lease) are not allowable. (5) The replacement of the roof is allowable since the whole structure is not being

replaced. The office extension is not allowable, being capital in nature. (6) Interest on a loan used for trading purposes is deductible in calculating the

trading profit on an accruals basis. (7) There is no balancing adjustment on the sale of an industrial building after

21 March 2007.


ACCA F6 Taxation

Working – Plant and machinery

£

Pool £

Motor car £

Short-life asset

£

Allowances

£

TWDV brought forward 10,000 17,500 2,300 Proceeds (31,100)______ (460)

Balancing charge (13,600)______ _____ (13,600)

Balancing allowance 1,840 _____ 1,840

Additions with AIA 7,800 AIA 100% (7,800)______ 7,800

Nil WDA (20%) (2,000)______ 2,000

8,000 Addition qualifying for FYA Motor car 16,000 FYA (100%) (16,000)______ 16,000 __

____

______

TWDV carried forward 8,000 ______ ______ Total allowances 14,040 ______

Note: The sale proceeds for the expensive motor car sold are restricted to original cost.

(b) Profits chargeable to corporation tax – y/e 31 March 2009

£ £

Trading profit 240,300 Interest income – Loan interest 15,410 Less: Non-trade debt written off (4,100)_____

11,310 Capital gain (£276,000 – £197,900 – £58,000) 20,100 _______ 271,710 Gift aid donation (800)_______

Profit chargeable to corporation tax 270,910 _______

(c) Effect on PCTCT

(i) Group relief

(1) Spectrum Ltd owns more than 75% of the share capital of Rainbow Ltd. They therefore form a group for group relief purposes.

(2) Spectrum can claim group relief for Rainbow’s loss. Spectrum Ltd’s profits chargeable to corporation tax would therefore have been reduced by £46,800.


Final Assessment

Group rollover relief

(1) Spectrum Ltd owns more than 75% of the share capital of Rainbow Ltd. They therefore form a gains group. In a gains group, gains realised by one group company can be rolled over into assets acquired by another group company.

(2) The sale proceeds from the disposal of the office building are not fully

reinvested, and so £6,000 (£276,000 – £270,000) of the capital gain cannot be rolled over.

(3) Spectrum Ltd’s profits chargeable to corporation tax would therefore

have been reduced by £14,100 (£20,100 – £6,000). (ii) Corporation tax liability – year ended 31 March 2009

£

Original PCTCT 270,910 Less Group relief (46,800) Gain rolled over (14,100)_______

Revised PCTCT 210,010 _______ Corporation tax (£210,010 at 28%) 58,803 Marginal relief 7/400 × (£750,000 – £210,010) (9,450 )

_______

Corporation tax liability 49,353 _______

Working: Spectrum Ltd has one associated company. The small companies rate limits are

therefore £750,000 (£1,500,000/2) and £150,000 (£300,000/2). The company is therefore a marginal relief company.


ACCA F6 Taxation

MARKING GUIDE Marks

(a) Adjusted profit computation Non-trade debt written off 1 Depreciation ½ Donation to political party 1 Gifts to customers – rucksacks allowable, correct treatment ½ Gifts to customers – champagne not allowed ½ Gift Aid donation 1 Donation to national charity 1 Legal fees – new lease 1 Legal fees – court action 1 Repairs 1 Entertaining 1 Disposal of office building 1 Loan interest received 1 IBA – no balancing charge 1 Capital allowances computation Balancing charge on car 1 Balancing allowance on short life asset 1 WDA on pool ½ AIA on equipment 1 FYA on low emission car 1 __

17 (b) PCTCT Transfer of trading profit from part (a) 1 Interest income 1 Capital gain 2 Gift Aid 1 __

5 (c) Effect of new subsidiary on PCTCT Group relief 2 Rollover relief 2 __

4 (d) Calculation of CT liability Revised PCTCT 1 Tax at 28% 1 Small company limits 1 Marginal relief 1 __

4 __ TOTAL 30 __


Final Assessment

ANSWER 3 (a) Sam

£ £

Sale proceeds (March 2009) 165,000 Cost (January 1995) 60,000 Enhancement (June 1996) 25,000 ______

(85,000)_______

Gain before reliefs 80,000 Principal private residence exemption Full exemption:

2009 March to 1995January 1996 Augustto 1995January 20/171 × £80,000 (9,357)

2009 March to 1995January 2009 March to 2006 April 36/171 × £80,000 (16,842)

Partial exemption:

2006 March to 1996 September2009 March to 1995January

_______ 115/171 × £80,000 × 2/3 (35,867)

17,934 Letting relief – lowest of:

(a) Gain on letting – £17,934 (b) Letting exemption − £40,000 (c) PPR exemption – £62,066 (17,934) _______ Chargeable gain Nil _______

(b) Eloise

£

Sale proceeds (December 2008) 8,200 Auctioneer's commission (150)______

Net proceeds 8,050 Cost (July 1985) (5,000)______

Gain 3,050 ______

The maximum gain is 5/3 × (£8,200 − £6,000) = £3,667 The gain chargeable is £3,050, being the lower figure


ACCA F6 Taxation

(c) Harry

£

Cost 38,000 Transferred to Helga (38,000)_______

Gain Nil _______

There is a no gain/no loss position on transfers between husband and wife.

Helga

£

Sale proceeds 325,000 Deemed acquisition price (38,000)_______

287,000 Less: Annual exemption (9,600) _______ Taxable gain 277,400 _______ Tax liability £277,400 at 18% 49,932 _______

(d) Emma

£

Proceeds (compensation) 30,000

Cost £12,500 × £5,000£30,000

£30,000+

(10,714)_______

Gain 19,286 _______

The revised base cost is £1,786 (£12,500 less £10,714 amount used in 2008/09). (e) Kiren

£

Sale proceeds 88,000 Cost (32,000)_______

Gain 56,000 Less: Entrepreneurs’ relief (24,889) (4/9 × £56,000) _______ Chargeable gain 31,111 Less: Annual exemption (9,600) _______ Taxable gain 21,511 _______ Tax liability £21,511 at 18% 3,872 _______ Due date 31.1.2010


Final Assessment

MARKING GUIDE Marks

(a) Sam Cost ½ Enhancement ½ Full exemption 2 Partial exemption 2 Letting relief 2 __

7 (b) Eloise Gain – normal calculation 1 Chattels note 1 __

2 (c) Harry No gain/no loss on spouse transfer 1 Calculation of gain on Freda's disposal 1

Annual exemption ½ Tax payable at 18% ½ __

3 (d) Emma Part disposal calculation 2 Revised base cost 1

__

3 (e) Kiren Gain 1 Entrepreneurs’ relief 1 Annual exemption 1 Tax at 18% 1 Due date 1 __ 5 __ TOTAL 20 __


ACCA F6 Taxation

ANSWER 4 (a) Marcel – property business income – 2008/09

£ £

Income Property 1 Rent (45 weeks × £150) 6,750 Property 2 Rent (8 months × £1,000) 8,000 Lease premium 4,000 Less 2% × (7 – 1) × premium (480)_____

3,520 ______ 18,270 Expenses Insurance (£280 + (8/12 × £1,200)) 1,080 Council Tax 900 Redecoration 1,800 Loan interest 4,200 Wear and tear allowance 10% × (£6,750 – £900) 585 _____

(8,565)______

Property business income 9,705 ______ (b) Marcel – Income tax computation – 2008/09

Total Other income

Savings income

£ £ £

Occupational pension 3,750 3,750 State retirement pension 3,500 3,500 Property business profit 9,705 9,705 British Government stocks 2,000 2,000 Bank interest (£3,000 × 80

100 ) 3,750 ______ ______ 3,750 _____ Total income Personal age allowance (W)

22,705 (8,578)______

16,955 (8,578)______

5,750 _____

Taxable income 14,127 8,377 5,750


Final Assessment

Income tax payable £

£ 8,377 at 20% (other income) 1,675 5,750 a_____ t 20% (savings income) 1,150

14,127_____ _____ Income tax liability 2,825 Tax suffered Bank interest (£3,750 − £3,000) or (£3,750 × 20%) (750)_____

Income tax payable

2,075 _____

The income from the Individual savings account is exempt from income tax.

Working – Personal age allowance £ Total income 22,705 Income limit (21,800)______

Excess 905 ______ Higher personal allowance (aged 65 – 74)

9,030

50% of excess (452)______

Personal age allowance 8,578 ______

MARKING GUIDE Marks (a) Property business profit Rent (½ mark each property) 1 Premium 1 Insurance, council tax, redecoration and loan interest (½ mark each)

2

Wear and tear allowance 1 __

5 (b) Income tax computation British government stocks income (treated as untaxed income)

½

Bank interest grossed up ½ Non-savings income charged at 20% ½ Savings income at 20% ½ Tax suffered ½ Non-inclusion of ISA ½ Personal allowance 2 __

5 __ TOTAL 10 __


ACCA F6 Taxation

ANSWER 5 (a) Factors that will influence a company’s choice of loss relief The following factors are important:

(1) The rate of corporation tax at which relief will be obtained, with preference being given to profits charged at the marginal rate or the full rate. (FY 2008 29.75% and 28%, FY 2007 32.5% and 30% and FY 2006 32.75% and 30%)

(2) The timing of the relief obtained, with a claim against total profits under s393A

ICTA 1988 resulting in earlier relief than a claim under s393 (1) ICTA 1988 against future trading profits.

(3) The extent to which relief for Gift Aid donations will be lost, since they can not be

carried forward.

(b) Profits chargeable to corporation tax

Year ended 30 June

2006

Period ended 31 March

2007

Year ended 31 March

2008

Year ended 31 March

2009 £ £ £ £

Trading income 113,400 Nil 36,400 Nil Loss relief – s393(1) (15,000)_______ − ______ − ______ − ______ 98,400 Nil 36,400 Nil Property business income

− _______

4,500 ______

8,100 ______

5,600 ______

98,400 4,500 44,500 5,600 Property business loss (3,600)_______ − ______ − ______ − ______ 94,800 4,500 44,500 5,600 Loss relief – s393A (21,200)_______ (4,500)______ (44,500)______ (5,600)______

73,600 Nil Nil Nil Gift Aid (9,600)_______ Wasted ______ Wasted ______ Wasted ______ PCTCT 64,000 _______ Nil ______ Nil ______ Nil ______ Unrelieved Gift Aid 800 ______ 1,200 ______ 1,100 ______

Notes: (1) The trading losses brought forward must be set off against the first available

trading profits (i.e. in the year to 30 June 2006). (2) The property business loss for the year to 30 June 2006 is automatically set off

against total profits of the same year.


Final Assessment

(3) The capital losses brought forward are set off against the capital gain arising in the period ended 31 March 2007. The unrelieved capital losses of £3,000 (£10,000 − £7,000) are carried forward for offset against future chargeable gains.

(4) The unrelieved amount of trading loss for the period ended 31 March 2007, £21,200 (£25,700 – £4,500) is carried back to the year ended 30 June 2006.

(5) The unrelieved amount of trading loss for the period ended 31 March 2009,

£72,700 (£78,300 – £5,600) is carried back to offset the profits before gift aid in the year ended 31 March 2008. The balance of £28,200 (£72,700 – £44,500) is unrelieved and will be carried forward for offset against the first available trading profits.

(c) If Loser Ltd had ceased trading on 31 March 2009

(1) The trading loss for the final 12 months of trading can be relieved against total profits for the previous 36 months under s393A ICTA 1988.

(2) Therefore the unrelieved losses of £28,200 can be fully set off in the year ended

30 June 2006.

MARKING GUIDE Marks

(a) Rate of corporation tax 1 Timing of relief 1 Impact on Gift Aid 1 __

3 (b) Trading income 1 Loss relief s393(1) ICTA 1988 1 Property business income 1 Property business loss relief 1 Capital loss and gain 2 Loss relief s393A ICTA 1988 2 Gift Aid 1 Unrelieved trading loss 1 __

10 (c) Carry back loss for 36 months 1 Loss fully utilised 1 __

2 __ TOTAL 15 __


f6 - final

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