ACCA

Paper F6 Taxation
Revision Mock Examination June 2013 Question Paper
15 minutes 3 hours Reading and planning Writing

Time Allowed

All FIVE questions are compulsory and MUST be attempted Rates of tax and tables are printed on pages 36. Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor.

 Interactive World Wide Ltd, March 2013 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Interactive World Wide Ltd.

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

Tax rates and allowances to use in this exam

Income tax
2012/13 Basic rate Higher rate Additional rate 1 to 34,370 34,371 up to 150,000 150,001 and above Other % 20 40 50 Dividends % 10 32.5 42.5

A starting rate of 10% applies to savings income where it falls within the first 2,710 of taxable income.

Personal allowances
Personal allowance Personal allowance for those aged 65 to 74 Personal allowance for those aged 75 and over Income limit for age-related allowances Income limit for standard personal allowance

8,105 10,500 10,660 25,400 100,000

Car benefit percentages

The base level of CO2 emissions is 100 grams per kilometre. % Petrol cars with a CO2 emission of 75 grams per kilometre or less Petrol cars with CO2 emissions of 76 - 99 grams per kilometre. 5 10

Car fuel benefit

The base level figure for calculating the car fuel benefit is 20,200.

Authorised mileage allowance payments (AMAP)

First 10,000 business miles Any miles in excess of 10,000 45p per mile 25p per mile

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Pension scheme limits

Annual allowance Lifetime allowance 50,000 1,500,000

The maximum contribution that can qualify for tax relief without any earnings is 3,600.

Individual savings accounts

Individual savings account the investment limit Maximum investment in a cash ISA 11,280 5,640

Capital allowances
Plant and machinery Main pool writing down allowance Special rate pool writing down allowance Motor cars CO2 emissions up to 110grams per kilometre CO2 emissions between 111 and 160 grams per kilometre CO2 emissions over 160 grams per kilometre Annual investment allowance 100% 18% 8% 25,000 18% 8%

Corporation tax
Financial year Small profits rate Main rate Lower limit () Upper limit () Standard Fraction 2009 21% 28% 300,000 1,500,000 7/400 2010 21% 28% 300,000 1,500,000 7/400 2011 20% 26% 300,000 1,500,000 3/200 2012 20% 24% 300,000 1,500,000 1/100

Marginal relief (U A) N/A Standard fraction

Value added tax

Standard rate of VAT Registration limit Deregistration limit 20% 77,000 75,000

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Capital gains tax

Annual exempt amount Rate of CGT Lower rate Higher rate Entrepreneurs relief Lifetime limit Rate of CGT 10,000,000 10% 18% 28% 10,600

Inheritance tax
1 - 325,000 Excess Death rate Lifetime rate Nil rate bands 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 - 2012/13 inclusive Taper relief rates Over 3 years up to 4 years Over 4 years up to 5 years Over 5 years up to 6 years Over 6 years up to 7 years Over 7 years 40% 20% 263,000 275,000 285,000 300,000 312,000 325,000 Percentage reduction 20% 40% 60% 80% 100% Nil

Rates of interest
Official rate of interest Interest on underpaid tax Interest on overpaid tax 4% 3% 0.5%

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National Insurance
Class 1 Employee 1 to 7,605 per year 7,606 to 42,475 per year 42,476 and above per year Class 1 Employer 1 to 7,488 per year 7,489 and above per year Class 1A Class 2 Class 4 1 to 7,605 per year 7,606 to 42,475 per year 42,476 and above per year Nil 9% 2% Nil 13.8% 13.8% 2.65 per week Nil 12% 2%

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This is a blank page. The question paper begins on page 8.

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ALL FIVE questions are compulsory and MUST be attempted

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(a) On 31 December 2012, Jay Mee resigned as an employee of Olivier Foods Ltd. The company had employed him as a food technician since 2001. On 1 January 2013, Jay commenced self-employment running his own gourmet food production business, preparing accounts to 31 May. The following information is available for 2012/13: Employment 1. During the period 6 April 2012 to 31 December 2012, Jays total gross salary from his employment with Olivier Foods Ltd was 80,000. During the period 6 April 2012 to 31 December 2012, Olivier Foods Ltd provided Jay with a diesel-powered company motor car with a list price of 38,000. The official CO2 emission rate for the car was 192 grams per kilometre. Olivier Foods Ltd also provided Jay with fuel for private journeys. Jay paid 100 per month to Olivier Foods Ltd for the use of the car, 50 per month towards the use of private fuel and he also made a capital contribution of 6,000 towards the cost of the car when it was first provided to him. The motor car was not available to him after he ceased employment on 31 December 2012. On 1 June 2011, Olivier Foods Ltd had provided Jay with an interest-free loan of 80,000 so that he could purchase a motorcruiser. Jay repaid 50,000 of the loan on 5 July 2012, and repaid the balance of the loan of 30,000 on 31 December 2012. During the period from 6 April 2012 to 31 December 2012, Jay was provided with free meals in Olivier Foods Ltds staff canteen. The total cost of these meals to the company was 580.

2.

3.

4.

Self-employment 1. Jays adjusted trading profit for the period 1 January 2013 to 31 May 2013 was 23,165. This is before taking account of capital allowances and any deduction arising from the premium paid in respect of the leasehold property. Jay purchased the following assets during the five-month period ended 31 May 2013. 4 January 2013 Equipment 6 March 2013 Motor car (1) 10 May 2013 Motor car (2) 7,000 9,840 15,600

2.

Motor car (1) purchased on 6 March 2013 has CO2 emissions of 135 grams per kilometre, was purchased for the use of an employee and 25% of the mileage is for private purposes. Motor car (2) purchased on 10 May 2013 has CO2 emissions of 165 grams per kilometre and is used by Jay. 40% of the mileage is for private purposes. 3. 4. On 2 January 2013, Jay paid a premium of 15,000 for a five year lease on a leasehold workshop for use solely in his business. Jays budgeted tax adjusted trading profits for the year ended 31 May 2014 is 24,600 (after adjusting for capital allowances).

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Other information below 1. During the period 6 April 2012 to 31 December 2012, Jay paid interest of 150 (gross) on a personal loan taken out on 1 August 2011 to purchase a computer for use in his employment with Olivier Foods Ltd. During 2012/13, Jay received building society interest of 1,120 (net), dividends from a UK company of 720 (net) and a premium bond prize of 1,000.

2.

Required: (i) Calculate Jays tax adjusted trading profit for the five months to 31 May 2013 and taxable trading profits for 2012/13, 2013/14 and 2014/15 (8 marks) Calculate Jays income tax liability for 2012/13. national insurance payable by (10 marks) Jay for (2 marks)

(ii)

(iii) Calculate the 2013/14.

You should assume that the rates and allowances for 2012/13 will continue to apply. (b) Since commencing self-employment, Jays sales have been as follows: Sales (net of VAT) January 2013 February 2013 March 2013 April 2013 May 2013 June 2013 7,000 10,000 15,000 18,000 20,000 28,000

He is expecting sales from July 2013 onwards to remain at the June 2013 level. All sales are standard-rated and made to VAT registered businesses. At present Jay issues invoices that show (1) the invoice date and invoice number, (2) the type of supply, (3) the quantity and a description of the goods supplied, (4) Jays name and address, and (5) the name and address of the customer. He does not offer a discount for prompt payment. Required: (i) Explain from what date Jay will be required to compulsorily register for VAT, and what action he must then take. (4 marks) Explain the circumstances in which Jay will be allowed to recover input VAT on goods purchased prior to the date of VAT registration. (2 marks)

(ii)

(iii) Advise Jay of the VAT rules that determine the tax point in respect of a supply of goods. (2 marks) (iv) State the additional information that Jay will have to show on his sales invoices in order that these are valid for VAT purposes. (2 marks) (30 marks)

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(a)

Maximum Ltd prepares statements of profit or loss to 30 June each year but decided to change its accounting date and prepared a statement of profit of loss for nine months to 31 March 2012 and its results for the recent periods of trading were as follows: Year ended 30 June 2011 Taxable trading profits Property business profits Chargeable gain/ (capital loss) Qualifying charitable donations 82,700 7,100 2,000 (1,500) Nine months 31 March 2012 73,800 14,800 (3,000) (2,000)

The following information is available in respect of the year ended 31 March 2013: Trading loss Maximum Ltd expects to make a tax adjusted trading loss for the year of 180,000. Business property income Maximum Ltd has various properties, as follows: (1) A furnished office within their own building. The office was let throughout the year ended 31 March 2013 at a quarterly rent of 3,000, payable in advance. Maximum Ltd paid business rates of 2,200 and insurance of 460 in respect of this office for the year ended 31 March 2013 and claims the wear and tear allowance each year. A leasehold office building which is let out unfurnished. Maximum Ltd pays an annual rent of 7,800 for this property, but did not pay a premium when the lease was acquired. On 1 April 2012 the property was sub-let to a tenant, with Maximum Ltd receiving a premium of 18,000 for the grant of an eight-year lease. The company also received the annual rent of 6,000 (which was payable in advance) on that date. Maximum Ltd paid insurance of 310 in respect of this property for the year ended 31 March 2013. A freehold office building which will be let on an unfurnished basis. This was purchased during the year ended 31 March 2013 but the tenant will not occupy it until June 2013. On 1 January 2013 Maximum Ltd paid insurance of 480 in respect of this property for the year ended 31 December 2013, and during February 2013 spent 680 on advertising for tenants. Maximum Ltd paid loan interest of 1,800 in respect of the period 1 January 2013 to 31 March 2013 on a loan that was taken out to purchase this property.

(2)

(3)

Loan interest received Maximum Ltd loaned money to Mini Inc and received loan interest of 8,500 on 31 December 2012 for the twelve months to that date. Interest accrues evenly each month and an accrual will be made of 3,225 at 31 March 2013.

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Overseas dividend On 15 October 2012 Maximum Ltd received a dividend of 11,900 (net) from a 7% shareholding in Mini Inc, a company that is resident overseas. Withholding tax was withheld from this dividend at the rate of 5%. Chargeable gain On 14 October 2012 Maximum Ltd sold its 7% shareholding in Mini Inc. The disposal resulted in a chargeable gain of 13,550, after taking account of indexation. Required: (i) (ii) Calculate Maximum Ltds property business profit for the year ended 31 March 2013; (7 marks) Assuming that Maximum Ltd claims relief for its trading loss as early as possible, calculate the companys corporation tax for each of the year ended 30 June 2011, the nine months ended 31 March 2012 and year ended 31 March 2013 after claiming loss relief. (8 marks)

(b)

Maximum Ltd has owned 100% of the ordinary share capital of Scratch Ltd since it began trading on 1 April 2012. For the three-month period ended 30 June 2012 Scratch Ltd made a trading profit of 28,000, and is expected to make a trading profit of 224,000 for the year ended 30 June 2013. Scratch Ltd has no other taxable profits or allowable losses. Required: Assuming that Maximum Ltd does not make any loss relief claim against its own profits, advise Scratch Ltd as to the maximum amount of group relief that can be claimed from Maximum Ltd in respect of the trading loss of 180,000 for the year ended 31 March 2013. (3 marks)

(c)

Maximum Ltd has surplus funds of 125,000 which it is planning to spend before 31 March 2013. The company will either purchase new equipment for 125,000, or alternatively it will purchase a new ventilation system for 125,000, which will be installed as part of its factory. Maximum Ltd has not made any other purchases of assets during the year ended 31 March 2013, and neither has its subsidiary company Scratch Ltd. Required: Explain the maximum amount of capital allowances that Maximum Ltd will be able to claim for the year ended 31 March 2013 in respect of each of the two alternative purchases of assets. (4 marks)

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(d)

Maximum Ltd is planning to pay its managing director a bonus of 40,000 on 31 March 2013. The managing director has already been paid gross directors remuneration of 50,000 during the tax year 2012/13, and the bonus of 40,000 will be paid as additional directors remuneration. Required: Advise the managing director as to the additional amount of income tax and national insurance contributions (both employees and employers) that will be payable as a result of the payment of the additional directors remuneration of 40,000. (3 marks) Note: You are not expected to recalculate Maximum Ltds trading loss for the year ended 31 March 2013, or redo any of the calculations made in parts (a) and (b) above for parts (c) and (d) of this question. (25 marks)

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Josh sold the following assets during 2012/13: 1. On 1 May 2012, he sold a 20% shareholding in Bluebird Ltd, an unquoted trading company which he worked for until his retirement. The shares were sold for net proceeds of 200,000. Josh originally purchased the shares in August 2005 for 110,000 when he started working for the company but decided to sell them on his retirement. Following his retirement, Josh decided to move to a smaller house so sold his home on 30 September 2012 for 320,000. Josh had originally purchased the house 1 January 2000 for 200,000 as an investment. The property was let to tenants between 1 January 2000 and 30 September 2004 until Josh moved in on 1 October 2004. He continued to live in the house until it was sold in 30 September 2012. Before moving house, Josh gave away lots of surplus furniture to charity but sold an antique table at auction in June 2012 for 11,280 which is net of 6% auction fees. He originally purchased the table for 4,500 in October 1999. On 10 January 2013, Josh sold 2,000 preference shares in Kite plc for 18,000. He had originally purchased 4,000 ordinary shares in Yacht plc for 9,500. On 1 December 2008, Yacht plc was taken over by Kite plc with shareholders being given 1 preference and 1 ordinary share in Kite plc in exchange for every 2 ordinary shares in Yacht plc. On 1 December 2008, each ordinary share in Kite plc had a market value of 4 and each preference share a value of 3.

2.

3.

4.

Josh has taxable income for 2012/13 of 48,500 and unused capital losses brought forward from earlier years of 9,000. Required: Calculate Josh's capital gains tax liability for 2012/13 and state the due date for payment. Assume Josh makes no claims for relief other than entrepreneurs' relief. (15 marks)

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Zion Ltd has the following income and gains for the year ended 31 March 2013: UK Taxable trading profit Trade profit of Xava Trade loss of Yeo Dividend from Argon Inc 420,000 34,650 (40,000) 22,500

Xava and Yeo are overseas branches of Zion Ltd. Xava has suffered tax in Higgsia, its country of operation at a rate of 10% before paying the above profits to Zion Ltd. Zion Ltd owns 30% of the shares of Argon Inc, a company incorporated and resident in Ruritania. Tax is suffered in Ruritania on profits at a rate of 8%. During the year to 31 March 2013, Zion Ltd also paid qualifying charitable donations of 10,000. Required: (a) Calculate the corporation tax liability for Zion Ltd for the year ended 31 March 2013 assuming the company has made no election to exempt the profits of the overseas branches. (10 marks) Advise Zion Ltd whether it would be beneficial for them to make an election to exempt the overseas branch profits from UK corporation tax. (5 marks) (15 marks)

(b)

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Candy died on 28 November 2012 at which date she owned the following assets: Main residence valued at 620,000. This has an outstanding repayment mortgage of 155,000. Antique furniture and other personal effects valued at 32,000. Bank and building society deposits of 19,000. A life policy on her own life which had an open market value of 60,000 but paid proceeds of 66,000. 6,000 Sweetie Ltd shares.

At her death, Candy had an outstanding income tax liability of 6,800, credit card debts of 900 and her funeral expenses amounted to 3,200. Candy had made just one lifetime gift. On 10 April 2011, her daughter Fifi got married and as a wedding gift, Candy gave her 10,000 shares in Sweetie Ltd an investment company. Candy owned 16,000 of the 20,000 ordinary shares in issue in Sweetie Ltd, an unquoted trading company, before the gift. Sweetie Ltd shares were valued as follows: Holding % 100 80 50 30 Value 10.4.2011 400,000 266,000 110,000 60,000 Value 28.11.2012 500,000 320,000 140,000 70,000

Candy was a widow when she died. Her husband Andy died on 1 June 2007. He left most of his estate to Candy apart from his parents old house which he left to his brother. The house was valued at 85,000 at the date of Andys death. Andy had made no lifetime gifts.

Nil rate band 2007/08 - 300,000 Required: (a) (b) (c) Calculate the amount of unused nil rate band available for Candy to claim from Andy. (2 marks) Calculate the inheritance tax that will be payable as a result of Candys death on 28 November 2012 (10 marks) Explain why inheritance tax can be reduced as a result of making lifetime gifts (3 marks) (15 marks)

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