F6 Taxation (UK)

Question A1 An apartment was leased for two years starting from 1st September 2010 at annual value of 24,000. What will be income from property for the Tax Years 10/11, 11/12 and 12/13 respectively? Question A2 A two years lease for an office building at annual value of 24,000 ended on 31st October 2011. It was renewed for a further period of two years at annual value of 36,000. Rent is received on quarterly basis, on the first day of quarter. Find out income from property for Tax Year 11/12? Expenses allowed to be deducted are; 1. Repairs and maintenance a. Repairs / Renovation / Decoration / Re-Decoration are revenue expenses and are allowed to be deducted b. Improvement is capital expense and is not allowed to be deducted 2. Insurance premium relating to the property 3. Council Tax / Water Tax 4. Bad debts expense (tenant has vacated the property / legal proceedings started) 5. Agents fee (lawyer, estate agent, accountant, newspaper advertisement) 6. Interest on loan taken for the property (to be deductible from property income in case of individuals) 7. Wear and tear allowance only for furnished accommodation 10% of (Rent Council Tax / Water Tax Bad debts expense) Personal Allowance: 7,475 Income Tax Rates Normal Dividend Basic Rate - 1 to 35,000 20% 10% High Rate - 35,001 to 150,000 40% 32.5% Additional Rate - 150,000 and 50% 42.5% above Relief on Premium = 2% (n - 1) x Premium (where n = lease term) Question A3 An unfurnished house was on a five years lease which ended on 31st May 2011. Its annual value was 72,000. The tenant left without paying rent for the three months March 2011 to May 2011. The recovery agency has confirmed that they cannot trace him for recovery. The house was re-let for 3 more years at annual rental value of 84,000 starting from 1st July 2011. Rent is received annually in advance. Consequently, full amount of 84,000 was received on 1st July 2011. The front door was repaired at a cost of 600 on 1st April 2011. The boundary wall got damaged due to floods in May 2011, and had to be repaired at a cost of 1,200. Damage by flood was not covered in the insurance. A new room was constructed in June 2011 at a cost of 3,500. Legal expenses of 1,500 were paid in relation to the new agreement made for tenancy in July 2011. The house is insured with insurance premium payable on 1st of August every year in advance. An amount of 1,200 was paid on 1st August 2010, and 1,800 was paid on 1st August 2011. Council and Water charges are 1,800 for the year. Calculate property income for 11/12?

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Question A4 (Furnished / premium on lease) Ahmed is 35 years old and had given his furnished apartment on a ten years lease ending on 31st August 2011 at an annual value of 72,000. The apartment was re-let (furnished) for 16 years at annual value of 196,000 starting from 1st January 2012. Premium on lease was 32,000. Rent is to be received quarterly in advance, however the rent for the quarter January March 2012 was not received until May 2012. Other expenses for the year are: 4,500 Redecoration costs 3,500 Cost of new kitchen units 2,400 Agents fee 1,200 Council Tax / Water Tax Calculate Income Tax Liability for the year 11/12? Question A5 (owner living in the property / early termination) (PA restriction) Babar purchased an apartment for 145,000 in 2001. He lived in the apartment till 31st July 2011. He shifted to his newly constructed house in August 2011 and gave his apartment on 55 years lease starting from 1st October 2011 at an annual value of 54,000. The apartment is furnished. He received premium on lease of 30,000. The lease had an early termination clause whereby it could be terminated after 15 years, if both parties agree. Expenses for the year are: 1,500 Renovation costs incurred in June 2011 4,500 Paint job done in August 2011 1,500 Insurance paid for the year ended 30 June 2012 1,200 Agents fee 900 Council Tax / Water Tax for the year Calculate Income Tax Liability for the year 11/12, assuming: a) Babar has employment income of 56,000? b) Babar has employment income of 72,000 Furnished Holiday Letting: a) It is available for letting for not less than 140 days in a fiscal year b) It is actually let out for a period of not less than 70 days in a year c) Property must not be usually let out for periods longer than 30 days. Rent a room Relief: 4,250 Question A6 (furnished holiday letting) Mariyam owns a house that qualifies as a trade under the furnished holiday letting rules. In 11/12 the property was let for ten weeks at 610 per week, and for twelve weeks at 625 per week. Mariyam spent 3,200 on repairs and 6,200 to buy furniture during 2011-12. Council Tax and Water Tax were 1,200 for the year. Other expenditure on this property for the year amounted to 2,750, and this entire amount is allowable. Capital Allowances for the year will be 3,100. Mariyam also rented out a furnished room of her main residence at 110 per week. The room was let out through-out the year, and Mariyam incurred 1,250 on repairs of the room. Calculate her Income Tax Liability for 11/12 taking most favorable assumptions?

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F6 Taxation (UK)

Exam Question 1 (June 2004) Adrian owns a house, which is not his main residence and which has been let furnished to tenants for the last four years. The annual rent payable in advance by equal monthly installments on the 6th of each month was 7,200 until December 2011 but was increased to 7,800 per year with effect from 6 January 2012. All amounts were received on time with the exception of that due for 6 March 2012, which was not received until 2 May 2012. Expenditure relating to the property was as follows: Council tax 960 Water rates 380 Agents fees 780 Re-decoration costs 1,250 New kitchen units 2,400 Mortgage interest 2,500 All these amounts were paid in the year by Adrian with the exception of the council tax which was the responsibility of the tenants. The kitchen units were purchased to replace the existing out-dated units in an attempt to modernize the property. The mortgage interest was paid in respect of a 50,000 interest only loan at 5% per annum. Required: Calculate the amount assessable under Property Income for the tax year 2011/12. Assume Adrian will claim wear and tear allowance. (5 marks) Distinguishing Employment Income from self employment a) Presence of a contract (agreement) of service b) Obligation by employer to provide work, and employee to undertake work c) Manner and method of work controlled by employer d) Employee committed to work specified number of hours e) Employee obliged to work exclusively for the employer f) Employee does not bear any financial risk (gets agreed remuneration) 1. Employer submits a form P.11D in respect of each employee obtaining benefits. Benefits are measured at the cost of providing them. These employees are also called 'higher paid employees' 2. PAYE is a system of tax collection whereby income tax under Employment Income is collected by the employer from employees earning more than the weekly or monthly equivalent of a single persons allowances. For most employees the tax deducted under PAYE will constitute their final liability without adjustment. Primary national insurance contributions are also collected from the employee together with the employers secondary national insurance contributions Question A7 (car) Ahmed worked in Flick plc as Finance Manager and retired on 5th April 2012. He received annual salary of 96,000 and was provided a petrol car with official CO2 emission of 173 g/km. Flick plc had purchased the car in 2008 for 21,600 (after receiving a special launch discount of 10%). Subsequently, the car was fitted with air conditioner costing 1,200 on 19th April 2010, a stereo system costing 800 on 21st February 2011, and sun roof costing 1,500 on 15th July 2011. Ahmed contributed 2,000 from his pocket for purchasing the car. He drove 10,000 miles during the year, until his retirement, and estimates 60% of the miles were for official purposes. Flick plc does not provide fuel, and requires all its employees to reimburse 75 monthly for the personal use of car. Calculate Ahmeds Income Tax liability for the year.

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Question A8 (fuel) Faisal receives annual salary of 66,000. He was provided with a petrol car purchased in 2009 at a cost of 22,000, with official CO2 emission of 187 g/km, until 31 August 2011. The petrol car was fitted with an air conditioner in January 2010 costing 2,000. Subsequently, on 1st September 2010 the car was replaced by a brand new diesel car costing 32,600 with official CO2 emission of 204 g/km. Fuel is provided by employer for both official and personal use. In 11/12, Faisal's employer incurred expense of 5,500 to maintain both the petrol and diesel vehicles, and 3,500 for providing the fuel. Faisal reimbursed 1,800 to his employer for private use of both the cars, and 800 for private use of the fuel during the year. Calculate his income tax liability for the year. Personal Allowance: Income Tax Rates Basic Rate - 1 to 35,000 High Rate - 35,001 to 150,000 Additional Rate - 150,000 and above CO2 emission less than 75 g/km 76 - 120 g/km 121 g/km 125 g/km Fuel scale charge 7,475 Normal 20% 40% 50% 5% 10% 15% 18,800

Dividend 10% 32.5% 42.5%

Question A10 (rent free accommodation/PAYE) Babar receives annual salary of 60,000. He is provided with a diesel car costing 32,000 with official CO2 emission of 247 g/km. On 1st November 2011, he was provided another petrol car costing 18,000 with CO2 emission of 115 g/km. Fuel is provided to Babar for both business and personal use. Babar drove the diesel car for 12,000 miles in 11/12 of which 30% were for his personal use. Petrol car is exclusively used by his wife. In January 2010 Babar was provided a rent-free furnished apartment costing 210,000 with annual rateable value of 22,000. His employer pays an annual rent of 24,000 for the apartment. PAYE for the year is 26,500. Calculate Babar's Income Tax payable for the year. Expenses relating to living accommodation (Ancillary Services) Heating, lighting and cleaning Repair, maintenance, decoration of the premises Council Tax, Water tax paid by employer Question A11 (ancillary services) In October 2010 Mariam was provided a rent-free furnished apartment by her employer. The apartment had originally cost 210,000 when purchased in May 2003, and has annual rateable value of 24,000. Capital expense of 35,000 was incurred in June 2005 to improve the apartment. The apartment had a market value of 320,000 in January 2011. Her employer also paid the following expenses relating to the apartment in 10/11: Repairs and maintenance 1,500 Council Tax / water tax 2,000 Calculate her benefit for the year 2011/12.

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Question A12 (loan) On 1.07.10 Asma took an interest free loan of 25,000 from her employer to buy a holiday cottage. She repaid 5,000 on 1.07.11, 3,000 on 1.10.11, 7,000 on 1.1.12 and 10,000 on 1.07.12. Calculate her benefit for 2011-12. Question A13 (Furniture/equipment for use) Saad is employed at an annual salary of 36,000. He was provided furniture for his personal use costing 12,000 in January 2010. In February 2010 he was also provided with a television costing 2,500. A laptop computer costing 3,500 was provided to him on 6th July 2011 for his personal use. Calculate his benefit for 11/12. Question A14 (Furniture/equipment purchase) Hasan was provided furniture costing 20,000, and a television costing 3,000 on 1.07.10 for personal use. He retired from his employment on 31st March 2012, and on that day purchased the furniture from his employer for 5,000, when its market value was 8,000. His employer allowed him to keep the television, which had a market value of 750 on that day. Calculate his benefit for the year. Exam Question 2 (December 2007) Edmond Brick owns four properties which are let out. The following information relates to the tax year 201112: Property one This is a freehold house that qualifies as a trade under the furnished holiday letting rules. The property was purchased on 6 April 2011. During the tax year 201112 the property was let for eighteen weeks at 510 per week. Edmond spent 5,700 on furniture and kitchen equipment during April 2011. Due to a serious flood 7,400 was spent on repairs during November 2011. The damage was not covered by insurance. The other expenditure on this property for the tax year 2011-12 amounted to 2,710, and this is all allowable. (Capital Allowance may be claimed at the rate of 20%). Property two This is a freehold house that is let out furnished. The property was let throughout the tax year 201112 at a monthly rent of 625, payable in advance. During the tax year 2011 12 Edmond paid council tax of 1,200 and insurance of 340 in respect of this property. He claims the wear and tear allowance for this property. Property three This is a freehold house that is let out unfurnished. The property was purchased on 6 April 2010, and it was empty until 30 June 2011. It was then let from 1 July 2011 to 31 January 2012 at a monthly rent of 710, payable in advance. On 31 January 2012 the tenant left owing three months rent which Edmond was unable to recover. The property was not re-let before 5 April 2012. During the tax year 201112 Edmond paid insurance of 290 for this property and spent 670 on advertising for tenants. He also paid loan interest of 5,100 in respect of a loan that was taken out to purchase this property. Property four This is a leasehold office building that is let out unfurnished. Edmond pays an annual rent of 6,800 for this property, and had paid a premium of 7,200 for a 15 years lease when he acquired it many years ago. On 6 April 2011 the property was sub-let to a

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F6 Taxation (UK)

tenant, with Edmond receiving a premium of 15,000 for the grant of a five-year lease. He also received the annual rent of 4,600 which was payable in advance. During the tax year 201112 Edmond paid insurance of 360 in respect of this property. Furnished room During the tax year 201112 Edmond rented out one furnished room of his main residence. During the year he received rent of 3,040, and incurred allowable expenditure of 4,140 in respect of the room. Edmond always computes the taxable income for the furnished room on the most favorable basis. Required: Calculate Edmonds property business profit in respect of the properties and the furnished room for the tax year 201112. (20 Marks) Bonus: Bonus is assessed on receipt basis for employees Bonus for Directors is assessed on earlier of: 1. The actual payment of earnings 2. When individual become entitled to the earnings / earnings are determined 3. When earnings are credited in their accounts. Question A15 A director of ABC Limited received a bonus of 12,000 on 1 May 2011. The bonus relates to the results of the company for the year ended 31 December 2009. It was credited in director's account on 1st April 2011 following a board meeting on 31 August 2010. In which tax year the bonus will be credited? Exempt Benefits Small loans totaling not more than 5,000 in one year Employers contribution to a registered Pension Scheme Use of Free or Subsidized canteen, if available to all employees Lunch vouchers up to a value of 15 pence per day Gifts from third parties, costing not more than 250 in a year from one source. If exceed, whole amount is taxable. 6. Entertainment (seats to sporting/cultural) events provided by third parties. 7. Long service awards (for more than 20 years service) up to 50 per year of service 8. Free car parking space near office (including reimbursements) 9. One mobile phone 10. Work buses, subsidies to public transport, bicycle and its safety equipment (aimed to encourage employees not to use cars) 11. Employer funded training both full time and part time, to increase employees skills. 12. Festival parties, annual dinners for staff up to 150 per person. If exceed whole is taxable. 13. First 8,000 of removal / relocation expenses. 14. Medical insurance when employee is working abroad 15. Welfare counseling, assistance in finding another job 16. Free pension advice for employees not costing more than 150 17. Expenses on overnight stay on company business exempt up to 5 per night in 1. 2. 3. 4. 5.

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UK, and 10 on international travel. If exceed, whole is taxable. 18. Employee liability insurance, death in service benefit, and permanent health insurance 19. Home workers additional household expense upto 3 per day 20. Work place nurseries for children (without any limit) 21. Upto 55 per week of childcare is exempt for basic rate payers, 28 per week for higher rate payers, and 22 per week for additional rate payers. 22. In house sports and recreational facilities Question A16 What will be the taxable amount of these benefits for Ali, who works as manager? a) The use of a company owned apartment. This had cost the company 180,000 in February 2005 and has been occupied by Ali since that date. The apartment has an annual value of 24,600 and Ali pays the company 2,500 per year for its use. It is estimated that market value of the apartment in January 2011 was 340,000. b) A 2000cc BMW car, which has a recommended list price of 28,000. The car has a CO2 emission rate of 193 grams per kilometer and is petrol driven. The car was first made available to Ali on 1 July 2011 and is used for both business and private purposes. The company paid for all the running costs of the car, which amounted to 2,400 in the tax year 201112. Ali paid 6,000 towards the cost of the car and 40 per month for the private use of the car. c) Furniture, valued at 12,000, is provided for use in the apartment. During 2011-12 the company paid decorating bills of 550 and wages to a cleaner amounting to 1,500. d) Ali has been provided with a computer to use at home for both business and private usage. He estimated that the private usage amounted to 40% and the business usage 60%. The computer was first provided in May 2010 when it had a market value of 2,400 and Ali has used if for whole of the tax year 2011-12. e) A 2,000 cc commercial van, first registered in August 2008, used privately for 40% of the time. This was made available for his use for the whole of 2011-12. His employer paid for all of the running costs including petrol, which amounted to 600 for the year. f) Ali was provided a loan to help him purchase a yacht. His employer advanced him 40,000 on 6 April 2011 and charged him interest at the rate of 1% per annum. Ali repaid 8,000 of the loan on 6 July 2011, but the remaining 32,000 remains outstanding. g) A home entertainment system was first provided for Ali to use at home on 6 April 2009 that was purchased by his employer at a cost of 1,200. The system was given to Ali to keep on 6 October 2011 when it was worth 650. h) His employer paid Ali incidental expenses amounting to 12 per night for 60 days overseas business travel, and 4 per night for 40 days UK business travel, during the tax year. i) Course fees amounting to 3,000 were paid by the company in respect of training courses relevant to Alis employment. j) Luncheon vouchers amounting to 336 in respect of 224 working days. k) Workplace parking. This was calculated as worth 6 per day for each of the 215 days that Ali attended work during the tax year 201112. l) Private permanent health insurance. This cost the company 800, but would have cost Ali 960 if he had arranged this himself. m) Assistance with relocation costs from the office in Manchester to the new office in Winchester (a distance of 210 miles), totaling 9,500.

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n) A Christmas bonus of 2,000 was received in December 2011 and an end of year bonus of 1,500 in respect of the companys year 1 April 2011 to 31 March 2012 was received in May 2012. o) Nursery vouchers for an approved carer to the value of 70 per week were given to Ali towards the cost of nursery schooling for Alis son. The vouchers were given for 40 weeks during the tax year 201112. All other employees are entitled to the same amount per week. Alis taxable income is about 90,000. Allowable Deductions from Employment Income: 1. Contribution by employee to occupational pension scheme 2. Mileage allowance (first 10,000 miles @ 45 p/mile, above @ 25 p/mile) 3. Professional subscriptions 4. Give As You Earn (Payroll giving) Question A17 (deductions from employment) Zara is employed as Finance Manager in Newco Ltd since 2005 at annual salary of 60,000. She paid 350 per month to the companys occupational pension scheme and tax of 35,000 under the PAYE system during 2011-12. She is provided a rent free flat with annual rental value of 30,000. Newco Ltd. had bought the flat in July 2005 for 178,000, and incurred a subsequent capital expense of 12,000 in August 2006 to improve the flat. Market value of the flat was 425,000 in early 2011. She is also provided a laptop computer costing 2,500 for personal use. During the year Newco Ltd paid 3,500 into her occupational pension plan. Zara had agreed with her employer that the company would deduct 90 a month during the whole of 2011-12 in respect of charitable payments under the payroll deduction scheme. In December 2011 she paid 215 membership fees to ACCA, a HMRC approved professional body. In addition, the company also paid 750 to the local golf club in respect of her yearly membership and refunded 1,325 to her in respect of actual business expenses incurred whilst she was away from home doing official work. She was provided a new diesel car for personal and official use with fuel having cost of 28,800 with official CO2 emission of 213 g/km from 1 October 2011. Newco Ltd gave her a mileage allowance of 55p per mile for the 6,000 business miles traveled by her in her own car till September 2011. Calculate her income tax liability for the year? NIC: Class 1 - Employee (not contracted out) Less than 7,225 7,226 - 42,475 Above Less than 7,072 Above

Class 1- Employer

Nil 12% 2% Nil 13.8% 13.8%

Class 1A - Benefits

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Exam Question 3 (December 2003) Vigorous plc runs a health club. The company has three employees who received benefits in kind during 201112, and it therefore needs to prepare forms P11D for them. Each of the three employees is paid an annual salary of 35,000. The following information is relevant: Andrea Lean (1) Andrea was employed by Vigorous plc throughout 201112. (2) Throughout 201112 Vigorous plc provided Andrea with a 2200 cc petrol powered company motor car with a list price of 29,400. The car was fitted with a new stereo system costing 1,200 in May 2010. The official CO2 emission rate for the motor car is 233 grams per kilometre. Vigorous plc paid for the entire motor cars running costs of 6,200 during 201112, including petrol used for private journeys. Andrea pays 150 per month to Vigorous plc for the use of the motor car, and 50 for the private use of fuel. He had contributed 6,500 towards cost of the car. (3) Vigorous plc has provided Andrea with living accommodation since 1 November 2010. The property was purchased on 1 January 2005 for 130,000. The company spent 14,000 improving the property during March 2006, and a further 8,000 was spent on improvements during May 2010. The value of the property on 1 November 2010 was 170,000, and it has a rateable value of 7,000. The furniture in the property cost 6,000 during November 2010. Andrea personally pays for the annual running costs of the property amounting to 4,000. (4) Throughout 201112 Vigorous plc provided Andrea with a mobile telephone costing 500. The company paid for all business and private telephone calls Ben Slim (1) Ben commenced employment with Vigorous plc on 1 July 2011. (2) On 1 July 2011 Vigorous plc provided Ben with an interest free loan of 120,000 so that he could purchase a new residence. He repaid 20,000 of the loan on 1 October 2011. (3) During 201112 Vigorous plc paid 9,300 towards the cost of Bens relocation. His previous main residence was 125 miles from his place of employment with the company. (4) During the period from 1 October 2011 until 5 April 2012 Vigorous plc provided Ben with a new diesel powered company motor car which has a list price of 30,200. The official CO2 emission rate for the motor car is 151 grams per kilometre. Ben reimburses Vigorous plc for all the diesel used for private journeys. Chai Trim (1) Chai was employed by Vigorous plc throughout 201112. (2) During 201112 Vigorous plc provided Chai with a two-year old company van, although the van was unavailable during the period 1 August to 30 September 2011. The company paid 700 for fuel for Chais private use. (3) Vigorous plc has provided Chai with a TV for her personal use since 6 April 2010. The TV cost Vigorous plc 800. On 6 April 2011 the company sold the television to Chai for 150, although its market value on that date was 250. (4) Throughout 201112 Vigorous plc provided Chai with free membership of its health club. The normal annual cost of membership is 800. This figure is made up of direct costs of 150, fixed overhead costs of 400 and profit of 250. The budgeted membership for the year has been exceeded, but the health club has surplus capacity.

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(5) On 1 January 2012 Vigorous plc provided Chai with a new computer costing 1,900. She uses the computer at home for personal study purposes. Required: (a) Explain what is meant by the term P11D employee. (3 marks) (b) Calculate the benefit in kind figures that Vigorous plc will have to include on the forms P11D for Andrea, Ben, and Chai for 201112. (19 marks) Question A18 (Interest) Nasir works for a sports club as manager and gets annual salary of 60,000. He used his own car and fuel till 5th October 2011. He drove his 3 year old 2,000 c.c. petrol driven car costing 18,000 with CO2 emission of 188 g/km for a total of 9,000 miles till 5th October 2011. He estimates 1/3rd of his mileage till 5th October 2011 was for business purposes. His employer did not reimburse him for the car use. On 6th October 2011, he was provided a company maintained diesel driven car costing 32,000 with CO2 emission of 178 g/km. He drove the diesel car for a total of 12,000 miles of which 2/3rd were for business purposes. He is also provided club membership which cost 400. This amount comprise of fixed cost of 50 and profit of 100. Nasir pays 6% of his salary in occupational pension scheme, while his employer contributes a further 8%. PAYE for the year is 32,250. He received the following amounts from a UK building society as interest on his savings: on 15.03.11 received 1,200 (net) on 15.03.12 received 1,600 (net) Calculate his income tax payable and NIC. Question A19 (dividends) Ali is employed as finance manager at an annual salary of 60,000. He is provided a company maintained petrol car costing 26,500 with official CO2 emission of 193 g/km, without fuel for personal use, and a rent-free accommodation costing 115,000 with annual value of 16,000. His employer pays 18,000 as rent for the accommodation. Ali re-imburses 125 per month to his employer for using the car, and had made a capital contribution of 2,500 towards the cost of the car when it was first provided. Ali received two bonus payments from his employer during the tax year 201112. The first bonus of 22,000 was paid on 30 June 2011 and was in respect of the year ended 31 December 2010. Ali became entitled to this bonus on 15 March 2011. The second bonus of 30,000 was paid on 31 March 2012 and was in respect of the year ended 31 December 2011. Ali became entitled to second bonus on 15 March 2012. He received in 11/12 the following: Interest from Bank 9,600 (net) Dividends - UK Company 7,560 (net) He pays 12% salary in occupational pension fund. PAYE was 45,600. Calculate his income tax payable and NIC.

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Interest received Gross a) Interest from 3 war loan b) Interest from bonds / treasury bills c) Interest from National Saving Bank account (NSB) i. Ordinary account first 70 exempt from tax ii. Investment account d) Interest from National Saving Certificates exempt from tax Question A20 (Qualifying interest) Babar is employed at annual salary of 48,000. He also received: Interest from bank on 1.04.11 2,400 Interest on 3-1/2% war loan on 1.05.11 3,000 Interest from building society on 1.07.11 1,600 Interest from ISA on 1.09.11 1,500 Interest from bank on 1.10.11 2,400 Dividends from UK Company on 1.12.11 1,800 Interest NSB ordinary a/c on 1.01.12 200 Interest from bank on 1.04.12 2,000 Interest on 3-1/2% war loan on 1.05.12 1,000 He pays 10% salary in occupational pension fund. He paid qualifying interest of 500 during the year. PAYE was 13,100 for 11/12. Calculate his income tax payable for the year. Age related personal allowance: Income Limit for age related allowance = 24,000 Age 65 or over before 5 April 2011 = 9,940 Age 75 or over before 5 April 2011 = 10,090 Question A21 Mansoor, aged 66, retired from his job on 1.01.11. He has invested his savings in a UK bank and received interest on an annual basis. His earnings for 11/12 were: State retirement pension 8,600 Interest from Bank 4,800 (net) Dividends 11,250 (net) Calculate his income tax payable for 11/12. Question A22 (personal pension) Zahid, aged 48, is employed at annual salary of 52,000. He uses his own car and fuel, and drove 18,000 business miles during 11/12. His other income during the year was: Interest from Bank 4,800 (net) Dividends 2,700 (net) He paid 3,680(net) into a personal pension plan. Calculate his income tax payable. NIC:
Class 1 - Employee

(not contracted out)

Less than 7,225 7,226 - 42,475 Above Less than 7,072 Above Nil 12% 2% Nil 13.8% 13.8%

Class 1- Employer Class 1A - Benefits

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Exam Question 4 (December 2005) William Wong is the finance director of Glossy Ltd. The company runs a publishing business. The following information is available for the tax year 201112: (1) William is paid directors remuneration of 7,900 per month by Glossy Ltd. (2) In addition to his directors remuneration, William received two bonus payments from Glossy Ltd during the tax year 201112. The first bonus of 22,000 was paid on 30 June 2011 and was in respect of the year ended 31 December 2010. William became entitled to this bonus on 15 March 2011. The second bonus of 37,000 was paid on 31 March 2012 and was in respect of the year ended 31 December 2011. William became entitled to second bonus on 15 March 2012. (3) From 6 April 2011 until 31 December 2011 William used his private motor car for business purposes. During this period William drove 12,000 miles in the performance of his duties for Glossy Ltd, for which the company paid an allowance of 30 pence per mile. The relevant Inland Revenue authorized mileage rates to be used as a basis of an expense claim are 45 pence per mile for the first 10,000 miles, and 25 pence per mile thereafter. (4) From 1 January 2012 to 5 April 2012 Glossy Ltd provided William with a diesel powered company motor car with a list price of 46,000. The motor car cost Glossy Ltd 44,500, and it has an official CO2 emission rate of 234 grams per kilometer. Glossy Ltd also provided William with fuel for his private journeys. (5) William was unable to drive his motor car for two weeks during February 2012 because of an accident, so Glossy Ltd provided him with a chauffeur (driver) at a total cost of 1,800. (6) Throughout the tax year 201112 Glossy Ltd provided William with a television for his personal use that had originally cost 3,825. (7) Glossy Ltd has provided William with living accommodation since 1 January 2010. The property was purchased in 2003 for 190,000, and was valued at 310,000 on 1 January 2011. It has an annual value of 24,000. (8) Glossy Ltd pays an annual insurance premium of 680 to cover William against any liabilities that might arise in relation to his directorship. (9) During May 2011 William spent ten nights overseas on company business. Glossy Ltd paid him a daily allowance of 10 to cover the cost of personal expenses such as telephone calls to Williams family. (10) William pays an annual professional subscription of 450 to the Institute of Finance Directors; a HMRC approved professional body, and a membership fee of 800 to a golf club. He uses the golf club to entertain clients of Glossy Ltd. (11) William paid 10,080 into a personal pension plan during the year. This is the actual cash amount paid. (12) William paid 480 to a charity under gift aid scheme. This is the actual cash amount paid. Required: (a) State the rules that determine when a bonus paid to a director is treated as being received for tax purposes. (3 marks) (b) Calculate Williams tax liability for the tax year 201112. (15 marks) (c) Calculate the total amount of both Class 1 and Class 1A national insurance contributions that will have been paid by William and Glossy Ltd in respect of Williams earnings and benefits for the tax year 201112. (5 marks)

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Question A23 Ahmed has been in business of manufacturing and selling running shoes for many years. His profit and loss account for the year ended 31 December 2011 is: Gross Profit 290,000 Expenses - Depreciation 25,000 Lighting and heating (note 1) 18,000 Motor vehicle expenses (note 2) 22,000 Salaries and wages (note 3) 55,000 Repairs and renewals (note 4) 16,000 Gifts and donations (note 5) 3,000 Professional fees (note 6) 2,500 Employee Training (note 7) 4,000 Entertainment expenses (note 8) 8,000 Sundry expenses (note 9) 13,000 Irrecoverable debts (note 10) 5,000 (171,500) Net profit 118,500 Notes: 1. Ahmed lives in a flat situated above his shop. He had purchased the building in March 2005 at a cost of 75,000. He used 50,000 from his savings, and took a loan of 25,000 from bank for the purchase. It is estimated that 40% of the expenses relating to the building are for his personal flat. 2. During the year Ahmed drove his car for 16,000 miles, of which 80% were for private purposes, while his sales assistant drove the car for 9,000 personal and 3,000 business miles. Expense of 10,000 relates to Ahmeds car, while the balance amount of expense relates to car used by his sales assistant 3. Salaries and wages include Ahmed's annual salary of 12,000. Two sales assistants are employed in the shop; one of whom is Ahmed's daughter. She is paid 18,000 annually while the other assistant gets 15,000 per annum. Ahmeds wife is also employed as an accountant and receives 500 monthly salary. 4. Ahmed paid 4,000 in July 2011 to decorate his shop, while 2,000 was spent in September 2011 to decorate the flat. Security bars were fitted on shop windows in October 2011 costing 1,500. In November 2011, one of the side walls of the shop was knocked down by a speeding lorry, and had to be repaired at a cost of 2,000. Ahmed had bought two second hand leather cutting machines in December 2010, one of which was not in a working condition when purchased. It was repaired at a cost of 4,500 to bring into working condition in January 2011. The other machine broke down in July 2011 and was repaired at a cost of 2,000. 5. 100 calendars with shop name and logo printed on them were given to first 100 customers each costing 15. Ahmed also donated 8 pairs of running shoes costing a total of 800 to a local charity for its annual fund raising marathon, and provided lunch boxes costing 500 for the runners. Ahmeds wife received a gift costing 200 from the shop during the year. 6. Professional fees include cost of registering a new patent for shoes of 1,200, while 800 were paid to a Estate Agent for negotiating purchase of a new shop. Ahmed paid 500 as annual subscription to the local shopkeepers association.

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7. Ahmed did not know how to operate a computer. He took a computer course costing 1,500 in August 2011. 2,500 was paid to provide training to employees to operate the new leather cutting machines during the year. 8. 3,000 out of the expense relate to entertaining customers, while rest relate to provision of meals and snacks to the employees. 9. Sundry Expense include payment of 500 as parking fine incurred by the sales assistant while making a delivery to a customer, and 4,000 were paid to the sales assistant as relocation expense as reimbursement of moving his family in the city. 5,500 relates to lease rental paid for the year for car provided to sales assistant. Cost of car is 26,000 10. Irrecoverable debts: Trade debts written off Loan to former employee written off 2,500 1,500 Allowance for trade debts b/d Recovery of trade debts during the year P&L 1,200

800 5,000

Allowance for trade debts c/d 3,000

11. During the year Ahmed had taken shoes costing 500 from his shop for his personal use. He recorded the transaction at cost. Gross profit margin is 20% on sales. 12. Capital allowances for the year were 15,500. Gross profit includes dividend received (net) in July 2011 amounting to 4,500. Interest paid on loan taken for the building was 1,250 for the year. Calculate taxable profits for Ahmed. Plant and machinery includes: Office furniture and fittings (including carpets), furnishings Lifts and escalators, Office equipment (computers hardware / software) Motor vehicles, Commercial vehicles (ships, satellites, aircrafts, railways) Cost of complying with fire regulations, cost of security assets Question A24 Opening balance of P&M pool on 1st January 2011 is 62,000 Purchases: Furniture & Fittings costing 40,000 purchased in March 2011 Car costing 22,000 purchased in May 2011 having CO2 emission of 153 g/km Machinery costing 89,000 purchased in June 2011 Computer equipment costing 18,500 purchased in November 2011 Disposals Equipment bought for 1,200 in 2009 sold in December 2010 for 900 Computer bought in 2008 for 3,000 sold in August 2011 for 600 Car purchased in May 2011 for 22,000 sold for 19,500 in May 2012 Calculate capital allowances for the two years ending on 31st December 2011 and 31st December 2012 (assuming rate of capital allowance is same for both years).

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Exam Question 5 (June 2008 CAT) (a) Peppy has worked in the London office of Pepster Ltd for the last ten years earning over 45,000 per year. On 1 August 2011 he was transferred to Pepster Ltds Newcastle office, which is nearly 300 miles away. As a result Peppy moved house to the Newcastle area. During the tax year 201112 Peppy received the following benefits from Pepster Ltd: A 2000cc BMW car, which has a recommended list price of 28,000. The car has a CO2 emission rate of 198 grams per kilometre and is petrol driven. The car was first made available to Peppy on 1 July 2011 and is used for both business and private purposes. Pepster Ltd paid for all the running costs of the car, which amounted to 2,400 in the tax year 201112. Peppy paid 6,000 towards the cost of the car and 40 per month for the private use of the car. A computer was provided throughout the whole of the tax year 201112. The computer is used for both private and business purposes. The private use is estimated to be 40% of the total usage. Pepster Ltd paid 4,000 for the computer when it was first provided to Peppy in 201112. To help with Peppys move to Newcastle, Pepster Ltd paid Peppy 10,000 in July 2011 towards his relocation costs. Nursery vouchers for an approved carer to the value of 75 per week were given to Peppy towards the cost of nursery schooling for Peppys two young children. The vouchers were given for 40 weeks during the tax year 201112. All other employees of Pepster Ltd are entitled to the same amount per week. Peppys annual membership fee of 240 to Institute of Managers, a HMRC approved professional body. Required: Calculate income tax liability and NIC payable for the tax year 201112. (8 marks) (b) Coral also works for Pepster Ltd and has provided you with the following information regarding her income and outgoings for the tax year 201112: Income A gross salary of 38,000. A bonus of 6,000 received in May 2011. Benefits with a taxable value for income tax purposes of 2,500. Dividends of 900 received from UK companies in August 2011. Bank interest of 400 credited to her UK bank account in December 2011. Building society interest of 360 credited to her individual savings account (ISA) in 2011-12. A prize of 2,400 from gambling on the national lottery. Rental income of 4,800. This is the total taxable amount due for the tax year 2011 12 from a house owned jointly with her husband. Expenditure A total amount of 120 paid to a UK charity under an approved give as you earn (GAYE) scheme, administered by Pepster Ltd. Personal pension contributions amounting to 4,000 (net) paid to HM Revenue & Customs (HMRC) registered pension provider. Professional subscriptions of 180 to an HMRC approved professional body relevant to Corals employment. Tax, amounting to 8,230, was deducted from Corals employment income under PAYE for the tax year 201112. Required: Calculate the income tax payable by Coral for the tax year 201112. (12 marks)

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(c) Coral have recently purchased another property and have decided to rent it out to holidaymakers. State the conditions that must be met for the property to be treated as a furnished holiday letting. (6 marks) Annual Investment Allowance (AIA) for first 100,000 of expense in a year (excluding cars) for a period of 12 months. Capital Allowances 1) for plant & machinery = 20% 2) for cars having CO2 emission between 110 to 160 g/km= 20% 3) for cars having CO2 emission more than 160 g/km= 10% 4) for special rate pool = 10% First Year allowances for cars having CO2 emission lower than 110 g/km= 100% Question A25 (Expensive Cars balancing charge/allowance) Opening balance of P&M pool on 6th April 2011 is 125,000 Opening balance of special rate pool on 6th April 2011 is 85,000 Opening balance of Expensive Car on 6th April 2011 is 18,000

Purchases: Machinery costing 42,000 purchased in May 2011 Car-1 costing 18,600 purchased in August 2011 having CO2 emission of 148 g/km Car-2 costing 22,000 purchased in August 2011 having CO2 emission of 163 g/km Car-3 costing 11,000 purchased in January 2012 having CO2 emission of 105 g/km Disposals Car-1 sold in November 2012 for 13,500 Expensive car sold in December 2012 for 14,200

Calculate capital allowances for the two years ending on 5th April 2012 and 5th April 2013 respectively. Question A26 Opening balance of P&M pool on 1st October 2011 is 220,000

Purchases: Furniture & Fittings costing 120,000 purchased in December 2011 Car-1 costing 9,000 purchased in January 2012 having CO2 emission of 105 g/km Car-2 costing 28,000 purchased in March 2012 having CO2 emission of 175 g/km Car-3 costing 26,000 purchased in April 2012 having CO2 emission of 148 g/km

Disposals Car-1 sold in October 2012 for 9,500 Car-2 sold in May 2013 for 18,500 Car-3 sold in June 2013 for 19,000

Calculate capital allowances for: a) Nine months ending on 30th June 2012; and b) Year ending on 30th June 2013 respectively.

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Exam Question 6 (December 2007 CAT) Marys husband Patrick has worked for AB(UK) Ltd since 2004 and he has provided you with the following information regarding his income and outgoings for the year 201112: Income A gross salary of 65,000. A bonus of 8,000, received in May 2011, in respect of the companys accounting year ended 31 December 2010. A bonus of 10,000 was received in May 2012 in respect of AB(UK) Ltds accounting year ended 31 December 2011. Taxable benefits with a value for tax purposes of 4,350. Dividends received from UK companies of 1,800. Interest credited to his bank account of 2,400. Interest received from national savings certificates of 400. Premium bond prizes received of 1,500. Expenditure Pension contributions paid to AB (UK) Ltds HMRC approved occupational pension scheme of 400 per month. This is the actual cash amount paid. A donation of 800 (net) paid to a UK registered charity in August 2011 under the gift aid scheme. Tax, amounting to 21,400, for 2011-12 was deducted from Patricks employment income by PAYE. Required: Calculate the income tax payable by Patrick for the tax year 201112 Question A27 (Privately Used Asset) Ali has been in business of many years. His P&L account for the year ended 5th April 2012 is as follows: Gross Profit 300,000 Expenses - Depreciation 75,000 Lighting and heating (note 1) 15,000 Motor vehicle expenses (note 2) 30,000 Salaries and wages 60,000 Repairs and renewals (note 3) 16,000 Sundry expenses (note 4) 4,000 (200,000) Net profit 100,000 Notes: 1. Ali estimates that 30% of lighting and heating expense relates to his personal use. 2. 40% of the motor vehicle expense relates to car used by Ali. He estimates that 1/3rd of his mileage is for private purposes. Rest of the expense relates to car given to sales manager. The manager uses it for 30% business and 70% private purposes. 3. Repairs include 12,200 spent in May 2011 to install air conditioning equipment in the shop, and 3,800 spent on renovating the shop's flooring in July 2011. 4. Sundry expenses include 600 paid to lawyer to process lease to acquire a new shop. 5. Opening balance of P&M pool on 6th April 2011 is 24,000, while opening balance of Expensive Car is 15,600. Expensive car is used by Ali (note 2). 6. Ali purchased furniture (tables and shelves) costing 60,000 to replace the old one on

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12th July 2011. He had first purchased tables and shelves for the shop in 2002 at a cost of 24,000. These were sold off in June 2011 for 5,500 and replaced by new furniture on 12th July 2011. Ali had also bought a new car for his sales manager costing 11,400 with CO2 emission of 165 g/km in November 2011. He sold the expensive car, used by himself, on 20th March 2012 for 7,000, and purchased a new one costing 30,000 on 25th March 2012. The new car had a CO2 emission rate of 145 g/km. Calculate taxable profits for the year ending on 5th April 2012. Question A29 (Short Life Assets) Opening balance of P&M pool on 1st January 2011 is 125,000 Purchases: Machinery costing 92,000 purchased in May 2011 Computer equipment costing 18,000 purchased in June 2011 Car costing 21,000 purchased in August 2011 with CO2 rate of 142 g/km Disposals Car purchased in August 2011, sold in November 2012 for 7,500 Mechanical equipment sold in December 2012 for 3,000 originally purchased for 9,000 Computer equipment is claimed to be short life asset. Calculate capital allowances for the two years ending on 31st December 2011 and 31st December 2012 respectively. Question A30 Business started on 1.09.05. Taxable profits are: 1.09.05 31.12.06 = 32,000 1.01.07 - 31.12.07 = 36,000 Question A31 Business started on 1.05.10. A car was purchased on 1.9.10 costing 20,000 with CO2 emission rate of 140 g/km. The car is 20% used for private purposes. Adjusted profits before capital allowances are: 1.05.10 31.10.11 = 31,800 1.11.11 - 31.10.12 = 38,240 Question A32 Business started on 1.02.07. Taxable profits are: 1.02.07 30.09.07 = 16,000 1.10.07 - 30.09.08 = 36,000 Question A33 Business started on 1.12.07. Taxable profits are: 1.12.07 30.06.08 = 21,000 1.07.08 - 30.06.09 = 48,000 Question A34 Business started and taxable profits are for: 21 months ending on 31.01.08 = 21,000 Year ending on 30.01.09 = 24,000

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Question A35 (lease premium amortization) Fahad started his business on 1.09.10, and made accounts till 31.12.11 showing: Gross Profit 300,000 Expenses - Depreciation 75,000 Legal Fees (note 1) 15,000 Lease premium paid (note 2) 30,000 Rent of showroom (note 2) 24,000 Salaries and wages (note 3) 36,000 Repairs and renewals (note 4) 16,000 Sundry expenses (note 5) 4,000 (200,000) Net profit 100,000 Notes: 1. Legal fee includes 12,000 spent by Fahad to defend himself on a suit filed for fraud, while 1,200 relates to parking fines paid by delivery agents employed by Fahad. 1,800 was paid to a lawyer to negotiate rental agreement of the showroom. 2. The showroom was leased for 20 years on annual rent of 12,000 starting from 1.09.10. Premium of 30,000 was paid on the same date. Two year's advance rent was paid at start of the lease term. 3. Salaries and wages include Fahad's salary of 1,000 per month. His wife is also employed in the business as accountant, and receives a salary of 500 per month. 4. On 1.09.10, showroom was renovated at a cost of 10,000 of which 3,000 pertained to replace the electric wiring, and 7,000 on installing false ceiling. The remaining balance was spent on installing air conditioning at the show room on 1.12.10. 5. The first 100 customers were given gift hampers (wall clocks with shop's logo) worth 20 each, while the next 200 received food hampers costing 10 each as souvenir. 6. Fahad purchased a car costing 24,000 for his use on 1.01.11. He estimates that 20% of his mileage relates to business. Car has CO2 emission rate of 165 g/km. 7. Fahad receives interest of 8,000 (net) on first of July annually from his investment in debentures of Flick n Flack plc. He received dividends of 18,000 on 1.10.10, and dividends of 27,000 on 1.10.11 from his shares in an unquoted company. 8. Fahad has leased a car for his wifes personal use. The car has a CO2 emission of 165 g/km, with an annual rental of 4,000. His wife estimates 70% of her car use is for personal purposes. This rental is not included in the above P&L account. Calculate Fahad's Income Tax Liability for 11/12.

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Question A37 Business started and taxable profits are for: 27 months ending on 31.01.08 = 54,000 Year ending on 31.01.09 = 36,000 Question A38 Mansoor started his business on 1.07.2011. His results for the period ending 31.12.2012 were: Gross Profit 300,000 Expenses Depreciation 75,000 Lighting and heating (note 1) 15,000 Motor vehicle expenses (note 2) 30,000 Salaries and wages 60,000 Repairs and renewals (note 3) 16,000 Sundry expenses (note 4) 4,000 (200,000) Net profit 100,000 Notes: 1. Mansoor has purchased a building with 5,000 square feet covered area at a cost of 60,000 on 1.07.10. He used the ground floor (covered area 3,000 square feet) to open a showroom, and converted first floor to be used as accommodation for him. 2. Mansoor purchased a car on 1.12.11 for 28,500, which he used for himself. The car has a CO2 emission rate of 165g/km, and Mansoor drove it for 16,000 miles during the period, of which 12,000 miles were for business purposes. He purchased a second car, having a CO2 emission rate of 145g/km, on 1.03.12 for 15,800 that was given to Mansoors wife, who drove it for 5,000 personal miles. Mansoor estimates that 70% of motor vehicle expense charged in the profit and loss account related to his car, while rest relates to car used by his wife. 3. Repairs and maintenance include 6,000 to renovate the first floor of the newly bought building on 13.2.12, 2,000 spent to install security system for the shop on 1.5.12, and 8,000 spent to repair the air conditioning of the entire building on 1.11.12 (repair does not include any improvements). 4. Sundry expenses include 2,000 of goods taken by Mansoor for his personal use. The usual margin on these goods is 25% of the selling price. 1,500 relates to donation to local charity which had placed a free banner of the shop in their annual dinner. 5. On 1.07.11 Mansoor had purchased furniture for his shop costing 60,000, and furniture costing 12,500 for his accommodation. A computer costing 2,500 was acquired for his business on 1.08.11. 6. Mansoor received the following other income: Interest from NSC on 10.04.11 Interest from 3-1/2% war loan on 1.05.11 Interest from ISA on 1.07.10 Dividends from UK Company on 1.01.11

5,000 3,000 5,000 3,000 (gross)

Calculate income tax payable for 11/12.

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Exam Question 7 (June 2007)

Noel and Liam Wall are brothers. Noel has more income than Liam, so he is surprised that for the tax year 201112 his total income tax liability and national insurance contributions were much lower than Liams. The following information is available for the tax year 201112: Noel Wall 1) Noel is a self-employed musician. His P&L account for the year ended 5 April 2012 was as follows: Fee income 86,240 Depreciation 1,980 Motor expenses (note 2) 5,600 Professional fees (note 3) 2,110 Repairs and renewals (note 4) 2,360 Telephone (note 5) 830 Travelling and entertaining (note 6) 960 Other expenses (note 7) 2,050 (15,890) Net profit 70,350 2) During the year ended 5 April 2012 Noel drove a total of 8,400 miles, of which 7,560 were for business journeys. Noels motor car had a tax written down value of 32,800 at 6 April 2011. The car has a CO2 emission rate of 145 g/km. 3) The figure for professional fees consists of 840 for accountancy fees, 510 for personal tax advice in respect of the tax year 201011, and 760 for legal fees in connection with the defense of Noels business internet domain name. 4) The figure for repairs and renewals consists of 1,900 for a new guitar, and 460 for repairing this guitar when it was damaged. 5) Noel uses his mobile telephone to make business telephone calls. The total cost of the mobile telephone is included in the profit and loss account as an expense, although 160 of this cost relates to private telephone calls. 6) The figure for traveling and entertaining includes 370 for entertaining clients, and 120 for parking fines incurred by Noel. 7) The figure for other expenses includes 100 for a donation to a political party, 360 for a donation to charity under gift aid scheme, and 230 for a trade subscription to the Institute of Musicians, and 625 for Noels golf club membership fee. These are all cash amounts paid. 8) In addition to his self-employed income, Noel received dividends of 7,560 during the tax year 201112. This was the actual cash amount received. 9) He paid cash amount of 4,000 into a personal pension scheme during the year. Liam Wall 1) Liam is employed as a music producer by Forever Ltd. The company runs a recording studio. During the tax year 201112 he was paid a gross annual salary of 65,000. 2) He paid 2,000 into occupational pension scheme of Forever Ltd. 3) Throughout the tax year, Forever Ltd provided Liam with a diesel powered motor car which has a list price of 32,400. The official CO2 emission rate for the motor car is 193 grams per kilometer. The company also provided Liam with fuel for private journeys. 4) On 6 July 2011 Forever Ltd provided Liam with a new computer costing 1,800. He uses the computer at home for personal internet browsing. 5) On 6 August 2011 Forever Ltd provided Liam with a mobile telephone costing 350. This is the only mobile telephone that has been provided to Liam by Forever Ltd. 6) On 1 December 2011 Forever Ltd paid a golf club membership fee of 580 for Liam. 7) On 1 January 2012 Liam paid a professional subscription of 220 to the Guild of Producers, a HM Revenue & Customs approved professional body. 8) In addition to his employment income, Liam received building society interest of 6,640 during the tax year 201112. This was the actual cash amount received. Required: Calculate Noels and Liams income tax liability and national insurance contributions for the tax year 201112. (25 marks)

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Question A39 Zahid started business on 1.12.05. His taxable profits are: 1.12.05 30.09.06 = 20,000 1.10.06 - 30.09.07 = 36,000 1.10.07 30.09.08 = 48,000 Thereafter, he changed his accounting period to 30.06.09 and made accounts as: 1.10.08 30.06.09 = 45,000 1.07.09 30.06.10 = 60,000 Question A40 Babar started business on 1.08.01. His taxable profits are: 1.08.01 30.09.02 = 28,000 1.10.02 - 30.09.03 = 36,000 1.10.03 30.09.04 = 48,000 Thereafter, he changed his accounting period to 31.12.05 and made accounts as: 1.10.04 31.12.05 = 45,000 1.01.06 31.12.06 = 60,000 Question A41 Hasan started business on 1.10.06. His taxable profits are: 1.10.06 30.06.07 = 18,000 1.07.07 - 30.06.08 = 36,000 1.07.08 30.06.09 = 48,000 Thereafter, he changed his accounting period to 31.12.09 and made accounts as: 1.07.09 31.12.09 = 36,000 1.01.10 31.12.10 = 72,000 Question A42 (business closure) Saad started business on 1.10.01. His taxable profits are: 1.10.01 30.06.03 = 18,000 1.07.03 - 30.06.04 = 30,000 1.07.04 30.06.05 = 40,000 He closed his business on 31.01.06. Taxable profits for the period were: 1.07.05 31.01.06 = 45,000 Question A43 Maryam was employed by Flick plc at an annual salary of 60,000 till 31st May 2011. She was provided a company maintained car along with fuel for personal use till 31st May 2011. The car was diesel powered with CO2 emission of 142 g/km. The company purchased it at a cost of 25,500, although its list price was 28,000 Flick plc incurred an expense of 1,200 on maintaining the car till 31st May 2011. Maryam had earlier contributed 3,000 towards purchase of the car. In April 2011, Maryam had to go abroad on for official work. She was provided a daily allowance of 12 per day for the 10 days of the trip. Maryam also received a bonus of 30,000 on 15th May 2011 relating to the results of the companys year ended 31st December 2010.

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On 1st June 2011, Maryam resigned from his job and started her own business. Her profit (adjusted for tax, but before taking capital allowances) was: 1.6.11 31.12.11 = 23,800 1.1.12 31.12.12 = 46,240 She purchased a car having CO2 emission rate of 152 g/km costing 30,000 on 1.8.11. She estimates 80% use of the car is for business purposes. She received interest from bank in July 2011 of 8,000 (net), and dividends from a UK company in January 2012 of 5,400 (net). During 11/12, she made a contribution of 5,000 (net) in a personal pension scheme. She had also paid 8000 (net) as donation to an approved charity under gift aid scheme during the year. Maryam bought an apartment in January 2011. It remained empty till she gave it on 10 years lease starting from 1st July 2011 at annual value of 48,000. She also received a premium on lease of 24,000 on the same date. The apartment was repaired at a cost of 2,000 on 1st June 2011, and insured for a year at a cost of 1,200 starting from 1st August 2011. Calculate her income tax payable for 11/12. NIC: Class 2 Class 4 (not contracted out) 2.50 per week Less than 7,225 7,226 - 42,475 Above

Nil 9% 1%

Partnership
Question A44 Ali and Babar have been in partnership since 6 April 2000 as management consultants. The following information is available for the tax year 2011-12: Note Sales 142,200 Expenses Depreciation 3,400 Motor expenses 1 4,100 Other expenses 2 1,800 Wages and salaries 3 50,900 60,200 Net profit 82,000 1. The figure of 4,100 for motor expenses includes 2,600 in respect of the partners' motor cars, with 30% of this amount being in respect of private journeys. 2. The figure of 1,800 for other expenses includes 720 for entertaining employees. The remaining expenses are all allowable. 3. The figure of 50,900 for wages and salaries includes the annual salary of 4,000 paid to Babar (see the profit sharing note below), and the annual salary of 15,000 paid to Ali's wife, who works part-time for the partnership. Another part-time employee doing the same job is paid a salary of 10,000 per annum. Plant and machinery: On 6 April 2011 the tax written down values of the partnership's plant and machinery were as follows:

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Main pool 3,100 Motor car (1) 18,000 Motor car (2) 14,000 The following transactions took place during the year ended 5 April 2012: Cost/ (Proceeds) 8 May 2011 Sold motor car (2) (13,100) 8 May 2011 Purchased motor car (3) 11,600 21 November 2011 Purchased motor car (4) 14,200 14 January 2012 Purchased motor car (5) 8,700 Motor car (1) has a CO2 emission rate of 185 grams per kilometre. It is used by Ali, and 70% of the mileage is for business journeys. Motor car (2) had a CO2 emission rate of 145 grams per kilometre. It was used by Babar, and 70% of the mileage was for business journeys. Motor car (3) purchased on 8 May 2011 has a CO2 emission rate of 105 grams per kilometre. It is used by Babar, and 70% of the mileage is for business journeys. Motor car (4) purchased on 21 November 2011 has a CO2 emission rate of 135 grams per kilometre. Motor car (5) purchased on 14 January 2012 has a CO2 emission rate of 200 grams per kilometre. These two motor cars are used by employees of the business. Profit sharing: Profits are shared 80% to Ali and 20% to Babar. This is after paying an annual salary of 4,000 to Babar, and interest at the rate of 5% on the partners capital account balances. The capital account balances are: Ali 56,000 Babar 34,000 Required: Calculate the partnerships tax adjusted trading profit for the year ended 5 April 2012, and the trading income of Ali and Babar for the tax year 201112. Exam Question 9 (June 2006) Cedric Ding and Eli Fong commenced in partnership on 6 April 2002, preparing accounts to 5 April. Cedric resigned as a partner on 31 December 2011, and Gordon Hassan joined as a partner on 1 January 2012. The partnerships trading profit for the year ended 5 April 2012 is 90,000. Profits were shared as follows: (1) Eli was paid an annual salary of 6,000. (2) Interest was paid at the rate of 10% on the partners capital accounts, the balances on which were: Cedric 40,000 Eli 70,000 Gordon (from 1 January 2012) 20,000 (Cedrics capital account was repaid to him on 31 December 2011). (3) The balance of profits was shared: % 6 April 2011 to 31 December 2011 1 January 2012 to 5 April 2012 60 Cedric % 40 70 Eli % 30 Gordon

Required: Calculate the trading income assessments of Cedric, Eli and Gordon for the tax year 201112.

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Exam Question 10 (June 2009 CAT) Peter, Sam and Martha have been in partnership since early 2003. Due to a fall in demand for their services Martha decided to leave the partnership on 30 September 2011. Profits for the partnership for the two most recent accounting periods have been: Year to 31 December 2010 60,000 Year to 31 December 2011 45,000 Up to 30 September 2011 each partner received a salary of 10,000 per year and shared the remaining profits as follows: Peter 40%, Sam 40% and Martha 20%. Following Marthas departure the salaries for Peter and Sam remained the same and the remaining profits were shared equally. Martha had unrelieved overlap profits of 4,000 from the start of the partnership. Required: Compute the taxable profits for the three partners for 1112 and 1213.

(9 marks)

Administration of Tax
a) Her Majestys Revenue and Customs (HMRC) collects tax. b) Tax Returns: need to be filed by 31 October (non-electronic) or 31 January (electronic) following the end of the tax year. Self assessment is a calculation of the amount of taxable income and gains after deducting reliefs and allowances, a calculation of income tax and capital gains tax payable after taking into account tax deducted at source and tax credit of dividends. If tax payer is filing electronic tax return, calculation of tax liability is made automatically. If tax payer is filing a non-electronic tax return, and wants HMRC to make tax calculations on his behalf, he should file the non-electronic tax return before 31 October Late Filing of Returns There will be an initial 100 penalty if a self-assessment tax return is filed after the due date. If a return is more than three months late then there will be a daily penalty of 10 per day (for a maximum of 90 days). If a return is more than six months late a penalty of 5% of the tax due will be charged (subject to a minimum of 300). If a return is more than 12 months late a further penalty of 5% of the tax due can be charged, although a higher percentage will be charged if the failure to submit is deliberate Interest on late payments: Interest is payable on both payment on account and balancing payments if they are paid late. Interest on underpaid tax = 3.0% Interest on overpaid tax = 0.5%

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Late payment of Tax Where tax is paid more than one month late then there will be a penalty of 5% of amount due. Further penalties of 5% will be charged where tax is unpaid after six months, and again after 12 months. The penalties only apply to the balancing payment, and not to payments on account. They therefore cover any income tax, Class 4 NIC and capital gains tax paid late. Record Keeping: Records must be retained until 6 years after the 31 January following the tax year A tax return may be amended by the tax payer within 12 months after the filing date. Amendment may be made by the HMRC also to remove any obvious error or omission (arithmetic error). HMRC can enquire into tax return within 12 months of the date they receive the return. Assessments The time limits by which HM Revenue & Customs can make an assessment of income tax, capital gains tax or corporation tax have been aligned. The normal time limit is now four years, but this is increased to six years where tax is lost due to careless behavior, and to 20 years where tax is lost due to deliberate behavior. Claims The general time limit for making claims under income tax, capital gains tax and corporation tax has been aligned at four years. An income tax claim for the tax year 201112 must be made by 5 April 2016. Information and inspection powers A new single regime of HM Revenue & Customs information and inspection powers has been introduced. This new regime covers income tax, capital gains tax, corporation tax, VAT and PAYE. HM Revenue & Customs can request information from taxpayers by making a written information notice. Requests to third parties for information must normally either be agreed by the taxpayer or approved by the first-tier tribunal. HM Revenue & Customs also has new powers to enter and inspect a taxpayers business premises in order to look at business records and assets. Appeals procedure Previously, tax appeals by taxpayers were heard by either the General Commissioners or the Special Commissioners, and VAT appeals were heard by VAT tribunals. This system has been replaced by a new tribunal system. One new feature is that before an appeal is heard by a tribunal there is now the option for a taxpayer to request a review of a decision by a HM Revenue & Customs review officer. If an appeal does go to a tribunal then a case will be allocated to one of four tracks depending on the issues and tax at stake: The paper track will hear the simplest appeals, such as an appeal against a fixed penalty, and the case will normally be decided by the tribunal without a hearing.

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The basic track will involve a hearing but the exchange of documents beforehand will be kept to a minimum. The standard track will involve cases that are subject to more detailed case management and formality. The complex track will be for long or complex cases, or those that involve an important principle or a large financial sum. The new tribunal system consists of a first-tier tribunal and an upper tribunal. The firsttier tribunal will deal with all but the most complex of cases. The upper tribunal will deal with the more complex cases, and also hear appeals against the decisions of the firsttier tribunal. A decision made on a matter of fact is final, but a decision on a point of law can be appealed further via the court system. Penalties for Errors: If incorrect returns have been filed, or where a taxpayer fails to notify HM Revenue & Customs of a new taxable activity, or where the taxpayer is late in doing so a single penalty will be levied. The amount of penalty is based on the tax due but unpaid as a result of the failure to notify, but the actual penalty payable is linked to the taxpayers behavior: There will be no penalty where a taxpayer has a reasonable excuse for the failure to notify. There will be a penalty of 30% of the tax unpaid where there is non-deliberate failure to notify. There will be a penalty of 70% of the tax unpaid where there is deliberate failure to notify, and this is increased to 100% where there is also concealment. However, a penalty will be substantially reduced where a taxpayer makes disclosure, especially when this is unprompted by HM Revenue & Customs. Payment on accounts and final payment: 31 January during the tax year 1st payment of account 31 July following the tax year 2nd payment of account 31 January following the tax year Final payment to settle balance The de minimis limit for self-assessment payments on account has been raised to 1,000. Therefore payments on account are not required if the tax liability for the tax year 200910 was less than 1,000 or if more than 80% of the tax liability for that year was deducted at source. 1) Tax evasion is illegal and involves the reduction of tax liabilities by not providing information to which HMRC is entitled, or providing HMRC with deliberately false information. 2) In contrast, tax avoidance involves the minimization of tax liabilities by the use of any lawful means. However, certain tax avoidance schemes must be disclosed to HMRC. 3) A Chartered Certified Accountant would be expected to act honestly and with integrity. 4) Client should be advised to disclose details of all his income and capital gain to HMRC. 5) If such disclosure is not made you would be obliged to report under the money laundering regulations, and you should also consider ceasing to act for the client. In these circumstances you would be advised to notify HMRC that you no longer act for him although you would not need to provide any reason for this

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Question 45 Cindy has been a self-employed artist since 1990, making up her accounts to 30 June. Cindys tax liabilities for the tax years 200910, 201011 and 201112 are as follows: 200910 201011 201112 Income tax liability 3,680 4,100 5,230 Class 2 national insurance 125 125 125 contributions Class 4 national insurance 1,240 1,480 1,560 contributions Capital gains tax liability 1,000 4,880 Required: Prepare a schedule showing the payments on account and balancing payments that Cindy will have made or will have to make for 2010-11 and 2011-2012. Exam Question 11 (June 2008) Pi Casso has been a self-employed artist since 1990, making up her accounts to 30 June. Pis tax liabilities for the tax years 200910, 201011 and 201112 are as follows: 200910 201011 201112 Income tax liability 3,240 4,100 2,730 Class 2 national insurance 109 109 125 contributions Class 4 national insurance 1,240 1,480 990 contributions Capital gains tax liability 4,880 Required: (a) Prepare a schedule showing the payments on account and balancing payments that Pi will have made or will have to make during the period from 1 July 2011 to 31 March 2012, assuming that Pi makes any appropriate claims to reduce her payments on account. (Note: your answer should clearly identify the relevant due date of each payment). (7 marks) (b) State the implications if Pi had made a claim to reduce her payments on account for the tax year 201112 to nil. (2 marks) (c) Advise Pi of the latest date by which her self-assessment tax return for the tax year 201112 should be submitted if she wants HM Revenue and Customs (HMRC) to prepare the self-assessment tax computation on her behalf. (3 marks) (d) State the date by which HMRC will have to notify Pi if they intend to enquire into her self-assessment tax return for the tax year 201112 and the possible reasons why such an enquiry would be made. (3 marks) (15 marks) Profits FY 2010 FY 2011
0 300,000 (Small Company Rate) 21% 20% 300,000 - above (Full Rate) 28% 26% Lower Limit 300,000 300,000 Upper Limit 1,500,000 1,500,000 Marginal Relief Fraction (Taper Relief) 7/400 3/200 Marginal Relief = Fraction x (Upper Limit Augmented Profits) x Taxable Total Profits Augmented Profits

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Corporation Tax

Corporation Tax
Question 46 UUL Plc has the following income. Business Income (Trading profits) Interest Income Dividends from UK companies (amount received) Property Income

240,000 20,000 45,000 30,000

1) Calculate Corporation Tax if results are for the year ended 31 March 2012? 2) Calculate Corporation Tax if results are for the nine months ended 31 March 2012? 3) Calculate Corporation Tax if results are for year ending 31 December 2011? Question 47 (Associated Companies) Flick plc holds 60% shares in Flack plc, and 25% shares in Flock plc. Flick plc has the following income for the year ending 31 March 2012: Business Income (Trading profits) 320,000 Interest Income 30,000 Dividends from Flack plc (amount received) 90,000 Dividends from Flock plc (amount received) 45,000 Property Income 50,000 Calculate Corporation Tax Question 48 (Industrial Building Allowance) South Limited is a UK resident company, in the manufacturing business. Its profit and loss account for the period of 12 months ending 31 December 2011 is: Gross Profit 1.100,000 Expenses Depreciation 175,000 Gifts and donations (note 1) 30,000 Salaries and wages 100,000 Sundry expenses (note 2) 15,000 (320,000) Operating profit 780,000 Notes: 1. Gifts and donations include: a) Gift of diaries each costing 30 (with Co. name) to customers 14,000 b) Gift of food hampers to customers, with Co. name printed 6,000 c) Donation to national charity (under Gift Aid Scheme) 3,000 d) Donation to local charity (not under Gift Aid Scheme) 7,000 2. Sundry expenses include: a) Patent royalties payable for the year ended 31 March 2011 15,000 b) Patent royalties payable for the year ended 31 March 2012 25,000 These royalties are payable annually on 1st April based upon sales. 3. Opening balance of Plant & Machinery pool on 1.1.11 is 150,000. Opening balance of Expensive Car on 1.1.11 is 16,000. 4. The company purchased a car with CO2 emission of 170 g/km and costing 30,000 for its sales manager in May 2011. The car is estimated to have a 30% personal

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Corporation Tax

usage. Office furniture costing 85,000 was purchased in June 2011, while computer equipment costing 25,000 was purchased in November 2011. Computer is claimed as a short-life asset. 5. The company receives interest from bank annually. Amounts received were: a) for the year ended 31.12.10 12,000 b) for the year ended 31.12.11 24,000 c) for the year ended 31.12.12 18,000 6. The company owns an office building, which was let out unfurnished for a year on annual rental value of 48,000 starting on 1.7.10. The office building was re-let on 1.10.11 to another tenant for a period of 8 years on annual rental value of 60,000, with a premium on lease of 15,000. The company renovated the building on 1.8.11 at a cost of 8,000. 7. The company received dividends from the following companies: a) 45,000 from East Limited on 1.7.11. South Ltd. owns 30% of East Ltd. b) 90,000 from West Limited on 1.9.11. South Ltd. owns 60% of West Ltd. Calculate Corporation Tax. Exam Question 12 (June 2007) (pre-trading expenses) Hipster Ltd commenced trading on 1 October 2011 as a clothing manufacturer, preparing its first accounts for the six-month period ended 31 March 2012. The following information is available: Trading profit: The tax adjusted trading profit is 334,500. This figure is before making any tax adjustments required for: (1)Capital allowances. (2)The premium paid in respect of the leasehold property. (3) Advertising expenditure of 4,600. This expenditure was incurred during August 2011 and was deducted in arriving at the accounting profit for the period ended 31 March 2012. Plant and machinery: The following purchases and disposals of plant and machinery took place in respect of the six-month period ended 31 March 2012. Cost / (Proceeds) 10 August 2011 Purchased equipment 28,100 12 October 2011 Purchased machinery 29,900 29 December 2011 Purchased motor car (1) 11,600 18 January 2012 Purchased motor car (2) 14,800 7 February 2012 Purchased equipment 7,700 28 March 2012 Sold motor car (2) (11,300) 28 March 2012 Purchased motor car (3) 18,500 Motor Car (1) has a CO2 emission of 113 g/km. Motor Car (2) has CO2 emission of 143 g/km, while Motor car (3) has CO2 emission of 175 g/km. Motor Car (1) is used 30% privately by CEO. The other cars are used by employees of the company.

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F6 Taxation (UK)

Corporation Tax

Leasehold property: On 1 October 2011 Hipster Ltd acquired a leasehold office building, paying a premium of 80,000 for the grant of a twenty-year lease. The office building was used for business purposes by Hipster Ltd throughout the six-month period ended 31 March 2012. Loan interest received: Non-Trading Loan interest of 1,650 was received on 31 March 2012. Property Sold: On 1 December 2011, Hipster Ltd sold a piece of land for 44,950. It was purchased at a cost of 18,000 about ten years back. Indexation allowance from date of purchase till date of sale is 12,950. Dividends received: During the period ended 31 March 2012 Hipster Ltd received dividends of 21,600 from Drainpipe plc, an unconnected UK company. This figure was the actual cash amount received. Other information: Hipster Ltd has one subsidiary company. Required: Calculate Hipster Ltds corporation tax liability for the six-month period ended 31 March 2012.

Value Added Tax (VAT)

Registration Compulsory Registration: When turnover is more than 73,000 for the last 12 months. Voluntary Registration. From 4 January 2011 the standard rate of VAT is increased from 17.5% to 20%. Input / Output Tax a) VAT is only chargeable on the net amount, after taking all discounts. The discount for prompt payment is to be deducted, even if customers do not avail it. b) Output VAT is also charged on replacement value of goods taken out of business (drawings) by a sole-proprietor or a partner, and on gifts (unless less than 50). c) Samples may be provided to customers without any output VAT. d) Relief for impairment losses is only available if the debt is over six months old, as measured from the time that payment was due. e) Input VAT cannot be recovered in respect of local business entertainment, or the purchase of a motor vehicle, unless the vehicle is used entirely for business purposes. f) Input VAT will be available in case of cost of entertaining overseas customers. g) Input VAT cannot be claimed in respect of goods or services that are not used for business purposes. h) An apportionment is made where goods or services are used partly for business and partly for private purposes.

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Value Added Tax

When a UK VAT registered business imports goods into the UK from outside the European Union, then VAT has to be paid at the time of importation. This VAT can then be reclaimed as input VAT on the VAT return for the period during which the goods were imported. Pre-Registration Input VAT If stock and fixed assets are acquired up to three years prior to registration, and are not sold till registration, input tax can be claimed. If services are acquired up to six months prior to registration, input tax can be claimed. VAT de-registration: when turnover of last 12 months is less than 71,000 Tax Point in respect of a supply of goods, and a supply of services: a) The basic tax point for goods is the date that they are made available to the customer. b) The basic tax point for services is the date that they are completed. c) If an invoice is issued within 14 days of the basic tax point, the invoice date will usually replace that given above. d) If an invoice is issued or payment received before the basic tax point, then this becomes the actual tax point. VAT returns are normally completed on a quarterly basis. Each return shows the total output VAT and total input VAT for the quarter to which it relates. All new businesses and businesses with turnover of more than 100,000 annually, will file VAT return electronically. The deadline is one month and 7 days after the end of quarter. Any VAT payable is paid at the same date. A VAT invoice must be issued when a standard-rated supply is made to a VAT registered business. No invoice is required if the supply is zero rated. A VAT invoice should be issued within 30 days of the date that the taxable supply is treated as being made. A VAT invoice must include the VAT registration number, the tax point, the rate of VAT for each supply, the VAT-exclusive amount for each supply, the total VAT-exclusive amount, the amount of VAT payable. The VAT records must be kept for 6 years. A default occurs if a VAT return is not submitted on time, or VAT payable is not paid. On first default HMRC will issue a notice specifying surcharge period starting from date of notice and ending in 12 months time. If a trader defaults in the surcharge period, the period is extended for 12 months and a penalty is payable. First default 2% Second default 5% Third default 10% Fourth default 15% Surcharge period only ends when a trader submits four returns on time along with payment of tax.

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Value Added Tax

A VAT group is treated for VAT purposes as if it was a single company registered for VAT on its own. Group VAT registration is made in the name of a representative member, and this company is then responsible for completing and submitting a single VAT Return and paying VAT on behalf of the group. However, all the companies in the VAT group remain jointly and severally liable for any VAT liabilities. The advantages of group VAT registration are that: there is no need to account for VAT on goods and services supplied between group members. Such supplies are simply ignored for VAT purposes it is only necessary to complete one VAT return for the whole group, so there should be a saving in administrative costs. However, various limits, such as those for the cash and annual accounting schemes, will apply to the VAT group as a whole rather than on an individual company basis. When a UK VAT registered business acquires goods from within the European Union, then VAT has to be accounted for according to the date of acquisition. The date of acquisition is the earlier of the date that a VAT invoice is issued or the 15th day of the month following the month in which the goods come into the UK. This VAT charge is declared on the VAT return as output VAT, but can be reclaimed as input VAT on the same VAT return. Therefore for most businesses there is no VAT cost as the VAT charge and the corresponding input VAT contra out. The only time that there is a VAT cost is if a business makes exempt supplies, since an exempt business cannot reclaim any input VAT. Different Schemes 1. Cash accounting scheme can be used if annual taxable turnover is less than 1,350,000 and the business must leave the scheme if turnover increases from 1,600,000 (exclusive of VAT). Advantage is that a) VAT will be paid when trader receive payments b) only cash book is required to make the return. 2. Annual accounting scheme is mainly administrative as, under this scheme, a business only has to submit one VAT return each year. It can be used if annual turnover does not exceed 1,350,000 (exclusive of VAT). If turnover increases from 1,600,000, then traders will need to leave the scheme. Advantage is that administration costs are reduced. 3. The flat-rate scheme simplifies the way in which small businesses calculate their VAT liability, by applying a flat-rate percentage to total income. This removes the need to calculate and record output VAT and input VAT. It is available if turnover is less than 150,000 exclusive of VAT. Exam Question 13 (December 2007) Vanessa Serve, a tennis coach, is registered for value added tax (VAT), and is in the process of completing her VAT return for the quarter ended 31 December 2011. The following information is available: a) Sales invoices totalling 18,000 were issued in respect of standard rated sales. All of Vanessas customers are members of the general public. b) During the quarter ended 31 December 2011 Vanessa spent 600 on mobile telephone calls, of which 40% related to private calls. c) On 3 October 2011 Vanessa purchased a motor car for 12,000. On 18 December 2011 987 was spent on repairs to the motor car. The motor car is used by Vanessa in her business, although approximately 10% of the mileage is for private journeys. Both figures are inclusive of VAT at the standard rate.

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Value Added Tax

d) On 29 December 2011 tennis coaching equipment was purchased for 1,760. Vanessa paid for the equipment on this date, but did not take delivery of the equipment or receive an invoice until 3 January 2012. This purchase was standard rated. e) In addition to the above, Vanessa also had other standard rated expenses amounting to 2,200 in the quarter ended 31 December 2011. This figure includes 400 for entertaining UK customers. Required: (i)Calculate the amount of VAT payable by Vanessa for the quarter ended 31 December 2011. (5 marks) (ii)Advise Vanessa of the conditions that she must satisfy before being permitted to use the VAT flat rate scheme, and the advantages of joining the scheme. The relevant flat rate scheme percentage for Vanessas trade as notified by HM Revenue and Customs is 6%. Note: your answer should be supported by appropriate calculations of the amount of tax saving if Vanessa had used the flat rate scheme to calculate the amount of VAT payable for the quarter ended 31 December 2011. (5 marks)

Capital Gains
Question A49 Anis purchased a building on 15th June 2001 at a cost of 135,000. Incidental expenses related to purchase were 5,000. On 30th June 2011 he sold the building for 333,000. He paid 1,000 to the lawyer for making the sale document, and 2,000 for giving an advertisement in a local newspaper for selling the property. Calculate Aniss CGT liability for 11/12 if he does not have any other income? Capital Gains: Annual Exemption for 11/12: 10,600 Capital Gains Tax Rate: 18% (basic rate band), 28% (higher rate band) Age related personal allowance: Income Limit for age related allowance = 24,000 Age 65 or over before 5 April 2011 = 9,940 Age 75 or over before 5 April 2011 = 10,090 Question A50 Fahad, aged 67, purchased a building in August 2003 at a cost of 90,000. He sold it in September 2011 for 335,000. He had spent 25,000 in June 2007 for making improvements in the building. Fahad is employed by Flick n Flack plc at annual salary of 72,000. He is provided a company maintained diesel car costing 28,000 with official CO2 emission of 173 g/km and fuel for personal use. He drove the car for 14,000 miles during the year, of which 30% were for personal purpose. Flick n Flack plc had incurred expenses of 3,750 on provision of car, and 4,515 for fuel during the year. In 11/12, he received interest from bank of 6,720, dividends from a UK company of 2,700, and had paid personal pension of 4,400. These are cash amounts received and paid by him. Calculate his income tax and capital gains tax liability for 11/12.

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Capital Gains Tax

Question A51 (part disposal) Maryam is 67 years old. She received state pension of 4,500 and private pension of 4,200 in tax year 2011-12. She also received interest from bank of 1,600 and dividends from a UK Company of 9,450. She had purchased a building (comprising of ground floor and first floor) for 120,000 in August 2002. She sold the first floor for 104,000 in February 2012. Market value of ground floor was 156,000 on that date. Calculate her income tax and capital gains tax liability for 11/12. Question A52 (part disposal) Zahid purchased 20 acres of land for 90,000 in March 2001. He sold 15 acres of Land for 192,000 in September 2010. Market value of the remaining 5 acres was 128,000 on that date. In December 2011, he sold the rest of the 5 acres for 180,000. Calculate his capital gains for both transactions. Question A53 (chattels) Babar sold a painting in October 2011 for a sum of 8,400. He had bought the painting in 2002 at a cost of 4,100. Calculate capital gains tax for 11/12. Question A54 Asma bought a pair of vases for 3,000 in November 2003. She sold one vase in May 2008 for 5,400, when market value of the other vase was 6,600. She sold the second vase in July 2011 for 8,700. Calculate capital gains on both transactions. Question A55 (matching principle) Mansoor had bought the following shares in ABC plc: 2,000 shares bought on 15.9.03 for 4,000 1,250 shares bought on 27.3.05 for 4,500 1,750 shares bought on 31.1.07 for 6,500 2,500 shares bought on 12.10.11 for 15,000 500 shares bought on 29.10.11 for 3,500 Matching Principle: 1. Same day purchases 2. Following 30 day purchases 3. Shares in the Pool

Mansoor sold 5,000 shares for 37,500 on 12 October 2011. Calculate his capital gains tax for 11/12. Question A56 (bonus / right issue) Ali started his business on 1.1.11. His profits (adjusted, but before capital allowances) were: For the nine months ending on 30 September 2011 = 19,305 For the year ending on 30 September 2012 = 37,610 He had purchased a car costing 23,200 on 1st March 2011 with CO2 emission of 165 g/km. He estimates one quarter of his use is for personal purposes. In addition to his business, Ali received interest from bank of 9,600 and dividends of 5,400 during the year. These were the actual cash amounts received by him. He also paid a cash amount of 2,080 in a personal pension plan during the year. He sold 9,000 shares of ABC plc for 72,000 on 15 January 2012. He had initially purchased 3,000 shares on 27 March 2003 for 14,500. A bonus issue of 1 for 5 shares

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Capital Gains Tax

was made on 15 August 2006. Ali purchased further 5,000 shares in the same company on 12 October 2007 for 28,500, and subsequently received his full entitlement of 1 for 4 right issue at 5 per share on 31 December 2009. Calculate his income tax and capital gains liability for 11/12. Question A57 (re-organization / acquisition) Fahad sold 10,000 ordinary shares of Jupiter Limited (quoted company) for 65,100 on 31st December 2011. He had purchased 20,000 shares in Earth Limited (quoted company) in August 2004 at a cost of 5 per share. In December 2006, Jupiter Limited acquired Earth Limited and gave all of the Earth Limited shareholders 2 ordinary and 1 preference share of Jupiter Limited, against each of their original share in Earth Limited. Jupiter Limited's ordinary shares were trading at 5, while preference shares were trading at 2.5 on in December 2006. Calculate Fahad's capital gains for 11/12. Question A58(Gift Relief) a) Ahmed gave his shop, which was being used in business for the last three years, to his son Majid in August 2011 as a gift. The shop was valued at 95,500 on the day of gift. Ahmed had originally purchased it at a cost of 45,000 in December 2003. Calculate Capital Gains for Ahmed for 11/12. b) Majid sold the shop in January 2012 for 110,000. Calculate his Capital Gains for 11/12. Question A59 (Gift Relief) Faisal gave 10,000 ordinary shares in Flick plc to his son in September 2011 as a gift. He had purchased 15,000 shares in the company in June 2000 for 3.5 each. The shares were quoted on the day of gift at closing price of 670-686 pence per share and bargains of 664-692 pence. Calculate capital gains for Faisal for 11/12 considering that the shares are business assets and he claims all available reliefs. Question A60 Maryam gave a vase valued at 8,400 to her sister in July 2011 as a birthday gift. She had purchased a pair of two vases from Shanghai when she was posted in China in the year 2005 for 3,200. A dealer of oriental pottery had valued the pair of vases at 21,000 in July 2011, just before Maryam making the gift. Calculate capital gains for Maryam for 11/12. Question A61 (sale at below market value) a) Zahid sold his shop, being used in business, to his brother Fazal in August 2011 for 220,000 when it was valued at 280,000. Zahid had purchased the shop in May 2003 for 105,000. Calculate capital gains tax liability for Zahid for 11/12. b) Fazal sold the shop to Hamid in March 2012 for 305,000. Calculate his capital gains tax liability for 12/12.

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Capital Gains Tax

Question A62 a) Mahmood had purchased 15,000 shares in Flack plc in February 2001 for 4 each. In January 2004 he received a 1 for 3 bonus issue. He sold 10,000 shares to his son Saad in December 2011 for 50,000. The shares were quoted on the day of sale at bid price of 620-644 pence per share and bargains of 612-648 pence. The shares are business in nature. Calculate capital gains for Mahmood for 11/12. b) Saad sold all his shareholding in Flack plc in March 2012 for 68,000. Calculate his capital gains tax liability if he had capital tax losses of 6,000 brought forward from last year. Principal Private Residence 1) The 36 months directly preceding the disposal of property 2) Any period or periods which together do not last more than three years 3) An unlimited period throughout which the individual was employed abroad 4) Any periods or period not lasting more than four years, throughout which the individual was prevented from residing in the property because a. His place of work was too far from his property b. His employer required him to reside somewhere else Question A63(Principal Private Residence) Hasan purchased a house in London costing 95,000 on 1.9.85. He lived in it till 31.12.89, when he moved to Manchester taking up a new job. He came back to London on 31.12.94 and lived in the house till 31.12.96. On 1.1.97 he took up an offer to work in Japan for five years, and after coming back on 31.12.01 he continued living in the house till 31.12.04. On 1.1.05 he purchased an apartment close to his work, and shifted there. He sold the house on 31.3.12 for 245,000. Calculate capital gains for 11/12. Question A64 (letting relief business use) Zeeshan sold a house for 235,000 on 31.12.11. He had purchased it on 1.5.00 at a sum of 95,000. He lived there except for the period between 1.1.03 to 31.12.04, when the house was let out. From 1.5.00 to 31.12.02, one room of the house (constituting 20% of the areas) was used for business purposes. Calculate capital gains for 11/12. Exam Question 14 (December 2004) (Amended) (a) Amanda Perkins is 29 years old and is a UK resident. During the tax year 2011-12 she made the following disposals of capital assets: 17 August 2011: Four acres of land were sold for a gross amount of 80,000. An auctioneer's fee of 10% was charged on the disposal. The land had been part of a ten-acre plot that had cost 120,000, in September 1999. The market value of the remaining six acres was 240,000, in August 2011. 15 November 2011: A house, which had never been her main residence, was sold for 290,000. It had cost 186,000 in May 1989. The house has never been used as a business asset. 31 December 2011: A house, which was her main residence, was sold for 360,000. It had cost 130,000 in December 1990. From date of purchase till 31 December 1995 Amanda occupied it as her main residence. From 1 January 1996 till 31 December 2001 Amanda lived abroad due to requirements of her job. After returning to UK on 1 January 2002, Amanda lived in the house for one year, and then relocated to her newly bought apartment nearby. The house remained empty till 31

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December 2010. On 1 January 2011, Amanda sold the apartment and moved back to the house and lived there till it was sold. 14 January 2012: 2,000 shares in a quoted company APC Ltd (less than 1 % holding) were sold for 3,500. Amanda's purchases of APC Ltd shares have been: 14 September 1997: 1,000 shares for 640 16 November 2003: 500 shares for 550 19 October 2007: 500 shares for 775 14 January 2012: 200 shares for 300

The shares are classified as a business asset. Amanda had a capital loss of 8,500 bought forward as at 6 April 2011. Required: Calculate Amanda's net taxable gains for the tax year 2011-12. (You are not required to calculate the capital gains tax payable.) (12 marks) (b) Amanda's father, Harry made the following disposals during 2011-12: A small shop, which he has always used as a business asset. It cost him 90,000 in October 1999. On 14 February 2012 he sold the shop to Amanda for 115,000 when it had a market value of 185,000. 10,000 shares in an unquoted company as gift to his son. These shares were valued at 25,000 and Harry had purchased them for 12,000. An antique table valued at 8,400 as a gift to his wife. This table was purchased at a cost of 2,300 in the year 2001. Required: (i) Calculate Harry's chargeable gain on the disposals (ii) State base costs for future capital gains tax purposes.

(4 marks) (4 marks)

Question A65 (Roll over relief) Babar purchased a free hold factory building in 1995 at a cost of 250,000. He sold the building in June 2011 for 525,000 and purchased another factory building in the vicinity for a sum of 475,000 in February 2012. Both buildings are used in business and Babar claims all reliefs available to him. Calculate his capital gains for 11/12. Question A66 Ahmed sold a free hold factory building for 325,000 in December 2011. He had purchased the building in January 2003 at a cost of 120,000, after selling a freehold warehouse in March 2002 for 145,000. The amount of chargeable gains arising on sale of warehouse was 70,000. Both buildings are used in business and Ahmed claims all reliefs available to him. Calculate his capital gains for 11/12. Question A67 (Assets lost / destroyed) Maryam purchased a diamond necklace costing 8,400 on 12.06.01. The necklace was stolen on 15.1.11, and the insurance company paid a compensation of 12,000 on 31.5.11. Maryam purchased another necklace using the compensation for a sum of 15,800 on 1.7.11. Calculate her capital gains for 11/12.

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