Paper F6 Revision Questions and Answers

PAPer F6 revision Questions
DeCember 2011 exAminAtions
Income Tax - Individuals

Example 1
Jane earns 36,000 tax adjusted trading profit in 2010/11, receives bank interest of 4,000 and dividend income of 5,400. In addition she pays 800 to charity under the Gift aid scheme Calculate Janes income tax payable for 2010/11
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Example 2
recalculate Janes income tax payable if her tax adjusted trading profit income was only 8,000

Example 3
Benny has tax adjusted trading profit of 120,000 in 2010/11. He paid 12,000 to charity under the gift aid scheme and 1,000 of qualifying interest payments. Calculate bennys income tax payable.

Example 4
using example 3 - recalculate bennys income tax payable assuming he also received 45,000 of dividend income in 2010/11.

Example 5
Anne was born on 18th September 1940 and has Net Income of 25,000 Determine the personal age allowances she is entitled to in 2010/11

Example 6
Tony and Kathy are a married couple. Tony has employment income of 50,000 and receives rental income of 5,000. Kathy has no income. Discuss how, as a couple, they could reduce the overall tax liability
Income Tax - Property Business Profit

Example 7
Robert owns two properties. Property A is let out unfurnished at an annual rental of 4,000 from 1 July 2010. Rent is payable quarterly in advance. Expenses amounted to 1,500 for the year to 6 April 2011 on an accruals basis. Property B is let out furnished at an annual rental of 3,000, from 1 August 2010. Rent is payable annually in advance. Expenses amounted to 2,200 for the year to 6 April 2011. In addition, Robert claimed a wear and tear allowance. Determine roberts Property income to be assessed in 2010/11.

Example 8
Molly grants a 20-year lease on a shop on 1 August 2010 for a premium of 25,000. The annual rent of 12,000 is payable yearly in advance. Calculate mollys Property income for 2010/11 and the relief available to the tenant for the premium paid.

Example 9
Ben rented a furnished property to students at a monthly rental of 1,000 until 31 July 2010. The property was redecorated in August and let again from 1 September 2010 for 1,200 per month. Details of expenditure during 2010/11 Redecoration Water rates New washing machine Gardening Legal fee for tenancy agreement Mortgage interest Insurance 2,010 150 250 520 75 3,700 305
On 1 May 2010 he acquired another furnished property. He paid service charges of 25 per month and mortgage interest of 500 per month. The property was let from 1 August 2010 at a monthly rent of 600. (a) (b) Calculate bens Property income for 2010/11 What difference would it have made if the second property was classed as a Furnished Holiday letting property.
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Example 10
Jimmy rents a room in his main residence to Kenny. Jimmy receives rental income of 4,750 and incurs relevant expenses of 300 in 2010/11 Calculate Jimmys Property income assuming all elections are claimed for 2010/11
11
Income Tax - Unincorporated Business

Example 11
Kerrys net profit for the year ended 31 December 2010 was 30,000 included the following: Expenses: Proprietors wages Depreciation Contribution to Political Party Purchase of van for business Fines for inadequate fencing of equipment Legal fees for acquisition of a 21 year lease Donation to National Charity Entertaining customers Car Expenses Income: Income from furnished lettings (net of Expenses) Bank deposit interest (net) Dividends (net) 10,000 2,800 76 20,000 750 600 100 300 1,200 1,800 500 4,200
Kerry took goods from the business for her own use, with a cost of 280 and selling price 400. Kerry paid the business 280 for the goods. Kerry can show that her business use of the car is 80%. Calculate the adjusted profit for year ended 31 December 2010
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Example 12
Debra, a sole trader, prepares accounts to 31 December. The WDVs for capital allowances purposes, as at 31/12/09 were as follows: General pool Expensive car (private use 20%) 30,000 15,000
During the year ended 31/12/10 the following transactions occurred: 1 January 3 March 10 March 18 April 6 May 10 June 12 December purchased plant purchased car, CO2 emissions of 135g/km purchased car, CO2 emissions of 106g/km bought a printing press sold plant sold expensive car purchased a long life asset 40,000 11,000 18,000 4,000 2,000 16,000 160,000
The printing press is to be treated as a short-life asset. All assets sold were disposed of for less than cost. Calculate the capital allowances for the year ended 31 December 2010.
13

Example 13
Elliot bought a new industrial building on 1 January 2011, incurring the following costs: 40,000 200,000 50,000
Land Building Offices
He brought the building into industrial use immediately and continued to use it for industrial purposes until its date of sale on 1 January 2013. Elliot sold the building for 230,000 (including 50,000 for the land and 35,000 for the offices). Calculate the allowances given to elliot. (He prepares accounts to 31 march).
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Example 14
Felix, a scientific instrument manufacturer, makes up annual accounts to 31 March. He bought a new industrial building on 1 July 2010 and bought it into use straight away. The building cost 400,000 and was used for industrial purposes until 30 June 2011. The factory was used for non-industrial purposes for the period 1 July 2011 to 30 September 2012. On 1 October 2012 the factory was again in industrial use and continued to be so until its sale on 30 June 2013 for 475,000 to Terry. Calculate the allowances available to Felix for all relevant periods of account.
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Example 15
James prepares accounts to 30 September annually. His tax adjusted trading profit for the two years to 30 September 2010 were: 17,000 19,000
Year to 30 September 2009 Year to 30 September 2010 show the assessments for 2009/10 and 2010/11
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Example 16
Adam commenced trading on 1 July 2008. He prepared accounts to 30 June each year. His tax adjusted trading profit for the first two years were as follows: 36,000 42,000
Year ended 30 June 2009 Year ended 30 June 2010 show the assessments for all relevant years.
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Example 17
Emily commenced trading on 1 July 2008. She prepared accounts to 31 March 2010 and annually thereafter. Her tax adjusted trading profit for the first two accounting periods were as follows: 63,000 40,000
21 months ended 31 March 2010 Year ended 31 March 2011 show the assessments for all relevant years.
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Example 18
Patricia commenced trading on 1 September 2008. She prepared accounts to 30 June 2009 and annually thereafter. Her tax adjusted trading profit for the first two periods were as follows: 40,000 54,000
10 months ended 30 June 2009 Year ended 30 June 2010 show the assessments for all relevant years.
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Example 19
Jacqui commenced trading on 1 July 2008. She prepared accounts to 30 April 2010 and annually thereafter. Her tax adjusted trading profit for the first two periods were as follows: 66,000 30,000
22 months ended 30 April 2010 Year ended 30 April 2011 show the assessments for all relevant years.
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Example 20
Matthew commenced trading on 1 May 1999. After trading profitably for some years, he ceased trading on 31 March 2011. His tax adjusted trading profit for the final three periods is as follows: 37,000 40,000 36,000
Year ended 30/4/2009 Year ended 30/4/2010 Period ended 31/3/2011 Assume his overlap profits (for the period 1/5/99 - 5/4/00) were 25,000. show the assessments for all relevant years.
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Example 21
Anne decides to change her accounting date from 31 March to 30 June making up accounts for the three month period to 30 June 2009. Annes tax adjusted trading profit is as follows: 72,000 16,000 90,000
Year ended 31 March 2009 Three months to 30 June 2009 Year ended 30 June 2010 show the assessments for all relevant years.
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Example 22
Tony, a sole trader, commenced trading on 1 July 2006. He has now decided to change his accounting date to 30 September by making up accounts for the 15-month period to 30 September 2009. Tonys tax adjusted trading profit is as follows: 27,000 36,000 45,000 54,000
Year ended 30 June 2007 Year ended 30 June 2008 Period ended 30 September 2009 Year ended 30 September 2010 show the assessments for all relevant years.
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Example 23
Mike started trading on 1 November 2008. His trading results before deducting capital allowances were as follows: 8 months ended 30 June 2009 Year ended 30 June 2010 36,000 44,000
He bought a car with CO2 emissions of 145g/km on 9 November 2008 for 15,000 for the sole use of his salesman. Calculate his tax adjusted trading profit assessable amounts for 2008/09, 2009/10 and 2010/11.
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Example 24
Barbara makes up accounts to 31 March each year. For the year ended 31 March 2011 she incurred a trading loss of 10,000. Determine in which years barbara may claim loss relief?
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Example 25
Ken gave up his job with an orchestra, and started his own musical business on 1 November 2007. His results are as follows: Year ended 31 October 2008 31 October 2009 31 October 2010 31 October 2011 (50,000) 20,000 15,000 27,000
loss profit profit profit (estimated)
Kens only income was employment income as follows: Up to and including 2006/07 2007/08 (7 months) (a) (b) 60,000 p.a. 35,000
show how the loss would be relieved under current year, carryback, special opening year loss relief and carry forward relief. Which would be the most beneficial way for Ken to relieve the loss?
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Example 26
Bill and Ben share profits equally up to 31 October 2010 but in the ratio 2:1 thereafter. Their tax adjusted trading profits for the year to 31 December 2010 are 48,000. show the allocation of the tax adjusted trading profit to both partners in 2010/11
27

Example 27
Tracy and Donna are in partnership sharing profits equally. On 31 December 2009 Donna retired. Ethel was admitted to the partnership on 1 January 2010 and was entitled to one third of the profits. The tax adjusted trading profit for the years to 30 June 2009, 2010 and 2011 are 40,000, 54,000 and 60,000. Respectively Donna has overlap profits brought forward of 15,000. show the tax adjusted trading profit assessable for 2009/10, 2010/11 and 2011/12 for all partners.
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Example 28
Gordon has the following income and gains: 2009/10 6,000 20,000 2010/11 7,000 16,000
Total income Capital gains
He incurred a trading loss of 50,000 in his year ended 31 December 2010. show Gordons taxable income and chargeable gains for 2009/10 and 2010/11 assuming that he relieves his trading loss as early as possible.
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Income Tax - Employee Benefits

Example 29
Thomas earns 40,000 per annum. He is provided by his employer with a flat close to the office. Its annual value is 4,100. The flat was purchased in 2002 for 250,000 and was first made available to Thomas in January 2006 when it was worth 280,000. The employer paid heating bills of 580 in 2010/11. The furnishings in the house cost 20,000. Assume an official rate of interest of 4%. Calculate thomass benefit in respect of the provision of the accommodation and associated expenses.
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Example 30
Clare earns 20,000 p.a. and is provided with a petrol Volvo T5 by her employer. The car, which was purchased in January 2006, had a list price of 30,000. The car was first made available to Clare on 1 July 2010. The car has an official CO2 emission rate of 188 grams per kilometre. In the year 2010/11 she drove 16,000 miles, of which 2,000 were private. Clare contributes 20 per month to her employer for the private use of the car. Clare is also provided with fuel by her employer for private use. Calculate Clares benefits in respect of the company car.
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Example 31
Mike was first provided with a CD player for his private use on 6 April 2009. It had a market value of 6,000. His employer transferred the CD player to Mike on 6 April 2010, when it was worth 4,200. Mike was required by his employer to pay 500. Calculate mikes benefit for 2009/10 and 2010/11.
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Individuals - Pensions
Example 32
Tony is self-employed His tax adjusted trading profit assessable amount for 2010/11 is 20,000. You are required to calculate the maximum pension contribution he could obtain relief for in 2010/11.
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Individuals Capital Gains Tax

Example 33
Gill sold a factory used in her trade in November 2010 for 140,000. She had bought it in January 1988 for 60,000. The disposal was not part of the sale of the entire business. Gill made one other disposal in 2010/11 realising a capital loss of 4,500. Gills Taxable income in 2010/11 is 32,000. Calculate Gills capital gains tax payable for 2010/11 and state the due date for payment.
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Example 34
Frederick bought an Antique vase costing 3,000 in July 1997 and sold it in February 2011 for 4,500 James bought a painting costing 2,000 in September 1999 and sold it September 2010 for 7,500 Sam bought a rare manuscript in July 1993 for 10,000 and sold it in August 2010 for 3,000 Calculate the capital gains or capital loss arising for each individual.
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Example 35
Billy bought a set of ten terracotta warriors in March 1997 for 20,000. He sold 2 warriors in July 2010 for 6,000. The remaining 8 warriors were worth 28,000 in July 2010. Calculate the Capital Gain in 2010/11
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Example 36
Simon purchased an office block as an investment for 500,000 in April 2002. In September 2010 it was damaged by fire. Restoration Expenditure of 70,000 was incurred in February 2011 and Simon received insurance money of 60,000 in June 2011. The office block was worth 1,000,000 after the damage. Assume Simon elects to deduct the proceeds of insurance against the cost of the building when the restored asset is sold. Calculate the Capital gain arising (if any) in June 2011 and the base cost of the asset on a subsequent disposal. (Assume the tax rates for 2010/11 continue into the future).
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Example 37
Betty purchased an asset for 25,000 on 1 October 1991 which was destroyed by fire on 30 September 2010. She received compensation of 36,000 from her insurance company on 1 January 2011 and purchased a replacement asset for 34,000 on 1 February 2011. Calculate the Capital Gain arising on 1 January 2011 and the base cost of the replacement asset.
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Example 38
Nancy owns 5,000 shares in Horwick plc, a quoted company. They were acquired in June 2007 and September 2009 for a total cost of 18,000. Nancy sells 2,000 of the shares in December 2010 for 36,000. Nancy is not an employee of Horwick plc. Compute the Capital Gain arising on the sale of the shares in December 2010
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Example 39
Rebecca bought shares in Surpass plc as follows: Shares 800 1,000 500 1,800
6 October 1990 1 December 1993 1 August 2002 11 November 2010
On 1 June 1996 there was a bonus issue of 1:4. On 1 November 2010 she sold 3,550 shares. identify the shares rebecca has disposed of using the individual share matching rules.
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Example 40
Kit sold her unincorporated business on 31 October 2010 which she had owned for the previous 10 years, giving rise to the following Capital Gains and Capital Losses 200,000 (150,000) 350,000 120,000
Freehold factory Warehouse Goodwill Investment property
She also disposed of shares in Planet Limited in June 2010, (a company in which she owned an 8% holding and was a part time employee for the last 5 years), giving rise to a capital gain of 700,000 Kit had capital losses brought forward of 20,000, she has taxable income of 30,000. Calculate Kits Capital Gains tax Liability and state the due date for payment.
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Example 41
Chloe, a trader, disposed of land used in her business for 750,000 in March 2011. The land had cost her 100,000 in June 1988. The sale was not part of the disposal of the entire business. She purchased a factory (as part of the purchase of another unincorporated business), for trading use, in November 2011 for 700,000. Calculate the chargeable gain on the disposal of the land and the base cost of the factory.
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Example 42
Peter sold a business asset to Kris in October 2010 for 40,000 when its market value was 75,000. The asset had cost Peter 25,000 in March 1990. Gift relief is claimed. Calculate Peters chargeable gain and the base cost of the asset for Kris.
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Example 43
Jacqui bought a house in Manchester on 6 July 1991. She lived in it until 6 July 1996. She then took a job in Birmingham living in accommodation provided by her employer, and let out the house in Manchester. She left the job on 6 January 2006 and travelled for 2 years, returning to the house in Manchester on 6 January 2008. The house was empty during this period. She sold the house on 6 July 2010, making a capital gain of 190,000. Calculate the chargeable gain after all relevant reliefs
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Inheritance Tax
Example 44
Jasper died on 28 February 2011. His estate comprised of the following: House Bank account Cash ISA Motor vehicles Credit card debts Repayment mortgage on the house Funeral expenses amounted to 7,000 Under the terms of his will, Jasper left the house to his wife and the rest of the estate to his daughter. During his life Jasper made various gifts as follows: 12 November 2003 15 December 2003 18 March 2007 26 August 2009 - Gift to a trust of 200,000 - Gift to his daughter of 50,000 - Gift to his nephew of 175,000 on the occasion of his marriage - Gift to a trust of 250,000.
500,000 220,000
10,000
35,000
2,000 100,000
Jasper agreed to pay any lifetime IHT due. The relevant nil rate bands are as follows: 2003/04 2006/07 2009/10 255,000 285,000 325,000
Calculate the iHt arising on the lifetime gifts and the iHt as a result of death. state the due dates for payment of any iHt arising and who will pay and suffer the iHt.
45
Corporation Tax
Example 45
In the year to 31 March 2011 Cannock plc received and (paid) the following amounts: 280,000 20,000 30,000 4,500 (1,000) (80,000)
Tax adjusted trading profit Bank interest (accrued) Debenture interest (accrued) Dividends received (net) Gift Aid payment Dividends paid (net)
Calculate corporation tax payable by Cannock plc.
46
Corporation Tax
Example 46
Fallings Ltds profit before tax for the year ended 31 December 2010 was 90,000 included the following: Expenses: Directors salary Depreciation Gift Aid donation to charity Purchase of van for business Fines for inadequate fencing of equipment Legal fees for acquisition of a 21- year lease Amortisation of lease (cost 42,000) Christmas party for staff Entertaining customers Expenses of car used by a director Political donation to the Green Party Income: Income from furnished lettings (net of Expenses) Bank deposit interest Dividends (net) 42,000 2,800 180 20,000 750 600 2,000 480 300 1,200 100 1,800 500 4,200
A director took goods from the business for her own use, with a cost of 280 and selling price 400. The directors loan account was debited with the 280 cost. The director with a company car can show that her business use of the car is 80%. Calculate the adjusted profit for the year ended 31 December 2010.
47
Corporation Tax
Example 47
Westcroft Ltd, a small company which manufactures greetings cards, prepares accounts to 31 December. The WDVs for capital allowances purposes, as at 31/12/09 were as follows: General pool Expensive car (private use by director 20%) During the year ended 31/12/10 the following transactions occurred: 1 January 3 March 10 March 6 May 10 June 18 September 12 December purchased plant purchased car CO2 emissions of 145g/km purchased car CO2 emissions of 108g/km sold plant sold Expensive car bought printing press purchased a long life asset 40,000 11,000 18,000 2,000 16,000 4,000 160,000 30,000 15,000
The printing press is to be treated as a short-life asset. All disposals were for less than cost. Calculate capital allowances for the accounting period ended 31 December 2010.
48
Corporation Tax
Example 48
Skip plc had the following income and expenditure for the year ended 31 March 2011. 500,000 20,000 30,000 24,000 25,000 28,500 1,800
Adjusted profits Capital allowances Building society interest Debenture interest Gift Aid
amount received in the year amount accrued for the year amount received in the year amount accrued for the year amount paid
Calculate the taxable total Profits for year ended 31 march 2011.
49
Corporation Tax
Example 49
Bugs Bunny Ltd sold a factory used in its trade in November 2010 for 140,000. The company had bought it in January 1998 for 60,000. Assume that the indexation factor for the period January 1998 to November 2010 is 0.358. The company made one other disposal in its year to 31 March 2011 realising a loss of 4,500. Calculate the net chargeable Gains arising on the disposal of the two assets.
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Corporation Tax
Example 50
ST Limited sold 5,000 shares in JM Ltd for 50,000 on 12 January 2011. They had been acquired as follows: February 1992 January 1994 July 1997 February 2002 January 4th 2011 1,000 shares costing 1,500 1:4 Bonus issue 2,000 shares costing 4,000 1:5 Rights issue at 1.75 per share 2,000 shares costing 4,500
Calculate the chargeable gain to include in the Corporation tax computation. RPIs are: Feb 1992 Jan 1994 July 1997 Feb 2002 Jan 2011 136.3 141.3 157.5 173.8 230.0
51
Corporation Tax
Example 51
Daisy Ltd, a trading company disposed of a building for 750,000 in March 2011. The building had cost the company 100,000 in June 1990. Assume an indexed rise of 70% to March 2011. Daisy Ltd then purchased land, for trading use, in November 2011 for 700,000. Calculate the chargeable gain on the disposal of the building and the base cost of the land.
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Corporation Tax
Example 52
Bolton plc had the following results for the years ending 31 December. 2009 10,000 2,000 1,000 2010 2011 (18,000) 42,000 2,000 2,000 1,000 1,000
Tax adjusted trading profit/(loss) Interest income Gift aid payment
show how the loss is relieved, assuming bolton plc claims loss relief as soon as possible.
53
Corporation Tax
Example 53
Z Ltd made a loss of 120,000 in the year to 31 December 2010, and T Ltd made a Taxable Total Profit of 100,000 in the year to 30 September 2010. Calculate the maximum trading loss that Z Ltd can surrender to t Ltd for use in t Ltds accounting period to 30 september 2010
54
Corporation Tax
Example 54
J Ltd and K Ltd had the following results: y/e y/e 31/3/2010 31/3/2011 J Ltd K Ltd Tax adjusted trading profit Tax adjusted trading profit/(loss) 500,000 190,000 200,000 (120,000)
Calculate the taxable total Profits for each company in years ended 31 march 2010 and 31 march 2011 assuming the trading loss in K Ltd is offset in the most beneficial manner for the group
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Income Tax - PAYE Coding

Example 55
William Ltd has the following income for the year to 31 March 2011: Tax adjusted trading profit Overseas rental income (amount received net of 3% withholding tax) 1,500,000 155,200
Calculate the corporation tax for William Ltd for the year ended 31 march 2011
56
Income Tax - Self Assessment

Example 56
A taxpayers tax liability for 2009/10 was as follows: 9,400 (2,100) 7,300 700 3,500 11,500
Income tax Less: Tax deducted at source Class 4 NIC CGT
Calculate the payments on account for 2010/11 and state the due dates for payment
57
Income Tax - Self Assessment

Example 57
Continuing with the previous example, suppose that the taxpayers liability for 2010/11 is as follows: 10,800 (2,500) 8,300 800 4,600 13,700
Income tax Less: Tax deducted at source Class 4 NIC CGT
Calculate the balancing payment due on 31 January 2012 and the first payment on account for 2011/12
58
Income Tax - PAYE Coding

Example 58
Maureen, who is single, is a basic rate taxpayer. She paid a personal pension premium of 1,000 (net) and 120 professional subscription in 2010/11. She received benefits of 320 from her employer. She received untaxed income of 250, the tax liability on which is discharged by set-off against allowances. Underpaid tax of 150 from an earlier year is to be collected via her code. Calculate maureens PAYe tax coding notice for 2010/11.
59
Corporation Tax - Self Assessment

Example 59
Daisy limited has Taxable Total Profits of 2 million in year end 31 March 2011 (a) (b) Calculate the corporation tax and the due dates for payment What is the filing date?
60
VAT
Example 60
YR Ltd commenced trading on 1 June 2010. The value of its taxable supplies were 4,000 per month until 1 April 2011 when they increased to 8,500 per month. When does Yr Ltd have to notify HmrC that it needs to register for vAt and when is registration effective?
61
VAT
Example 61
Dolphin Ltd commenced trading on 1 June 2010. The value of its taxable supplies was 3,000 per month until 1 April 2011 when the company signed a contract such that monthly sales were expected to be 70,000. When is Dolphin Ltd required to register for vAt and by what date must it notify HmrC?
62
VAT
Example 62
In the quarter to the 30 June 2011, ST Limited made standard rated supplies of 100,000 and zero rated supplies of 50,000. It offered a 3% discount for payment within 28 days. Approximately a third of its customers took up the discount. It made standard rated purchases of 61,250 (VAT inclusive), which included 2,250 for entertaining customers. It made zero rated purchases of 12,000. It wrote off irrecoverable debts of 7,875 and 5,525 in respect of amounts due 1 September 2010 and 1 April 2011. Both figures are VAT inclusive. Purchased a car for the salesman who uses the car for private use costing 21,250 (including VAT) and machinery costing 11,750 (including VAT) show the entries to be included on the vAt return for quarter to 30 June 2011. All figures are VAT exclusive unless otherwise stated. Assume a VAT rate of 20% throughout.
63
VAT
Example 63
BW Ltd has the following sales & purchases in year ended 30 June 2011: Standard rated sales of 70,500 (including VAT) and zero rated sales of 5,000. Standard rated purchases of 11,750 (including VAT) if the relevant flat rate percentage is 9% for this trade, illustrate if it is advisable to use the flat rate scheme.
64
VAT
Example 64
Daisy Ltds VAT return for quarter to 30 June 2010 was submitted on 15 August 2010 with the payment of VAT 5,000 also on this date. The return and payment for quarter to 30 September 2010 was on time. The next return to 31 December 2010 was on time, but the related VAT payment of 40,000 was only paid on 10 February 2011. Discuss the vAt consequences of the late submission of the vAt returns and/or payments for Daisy Limited.
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VAT
Example 65
outline the advantages and disadvantages of Group vAt registration and outline which companies can form part of the vAt group
66
VAT
Example 66
Mars Limited exports 100,000 of goods to customers in New Zealand (Non EU country) and dispatches 50,000 of goods to non business customers in Germany (EU country) in the quarter to 30 June 2011. In addition within this VAT quarter it imports 150,000 of goods from an Australian business supplier (non EU country) and has acquisitions from a business supplier in France (EU country) of 75,000. Mars Limited makes wholly taxable supplies. Prepare an extract from mars Ltds vAt return for 30 June 2011, explaining your treatment of each item for vAt purposes.
PaPer F6 revision answers
December 2011 examinations 1
income tax - individuals

Answer to example 1 Jane Income Tax computation 2010/11 nonsavings 36,000 savings 5,000 36,000 (6,475) 29,525 5,000 5,000 Dividends
tax adjusted trading profit Bank interest 4,000 100/80 Dividends 5,400 100/90 Total Income Less: PA Taxable Income Tax calculation
6,000 6,000 6,000
Non savings 29,525 20% Savings 5,000 20% Dividends: [37,400 + (800 100/80) = 38,400 29,525 5,000 = 3,875] 5,905
1,000
3,875 10% 387 2,125 321/2% 691 6,000 Tax liability 7,983 Less tax deducted at source Dividends 6,000 10% (600) Bank interest 5,000 20% (1,000) Tax payable 6,383 The starting rate of 10% for savings income is not applicable as taxable non-savings income is above 2,440 Answer to example 2 nonsavings 8,000 savings 5,000 8,000 (6,475) 1,525 5,000 5,000 6,000 6,000 6,000 Dividends
tax adjusted trading profit Bank interest 4,000 100/80 Dividends 5,400 100/90 Total Income Less: PA Taxable Income
2 PaPer F6 revision answers Tax calculation
December 2011 examinations
Non savings 1,525 @ 20% 305 Savings [2,440 1,525 = 915] 915 @ 10% 91 4,085 @ 20% 817 5,000 Dividends: 6,000 10% 600 Tax liability 1,813 Less tax deducted at source Dividends 6,000 10% (600) Bank interest 5,000 20% (1,000) Tax payable 213 The payment to charity under the gift aid system is ignored as Jane is not a higher rate tax payer. Answer to example 3 Benny Income Tax computation 2010/11 nonsavings 120,000 120,000 (1,000) 119,000 (4,475) 114,525
Tax adjusted trading profit Total income Less: reliefs Qualifying interest Net income Less Personal allowance (W1) Taxable Income
Income Tax Non savings (W2) 52,400 20% 62,125 40% 114,525 Income tax liability Less tax deducted at source Income tax payable (W1) Net income Less: Gross gift aid payment (12,000 100/90) Adjusted Net Income Standard personal allowance Less: 1/2 (104,000 100,000) Revised Personal Allowance (W2) 37,400 + 15,000 = 52,400
10,480 24,850 35,330 () 35,330 119,000 (15,000) 104,000 6,475 (2,000) 4,475
Answer to example 4 Benny Income Tax computation 2010/11 nonsavings 120,000 120,000 (1,000) 119,000 () 119,000 Dividends 50,000
Tax adjusted trading profit Dividend income 45,000 100/90 Total income Less: reliefs Qualifying interest Net income Less Personal allowance (W1) Taxable Income Income Tax Non savings (W2) 52,400 66,600 119,000
50,000 50,000
20% 40%
10,480 26,640
(W3) Dividends (165,000 119,000) 46,000 321/5% 4,000 421/5% 50,000 Income tax liability Less tax deducted at source Dividends (50,000 10%) Income tax payable (W1) Net income Less: Gross gift aid payment (12,000 100/90) Adjusted Net Income
14,950 1,700 53,770 (5,000) 48,770 169,000 (15,000) 154,000
As adjusted net income 112,950 the personal allowance is reduced to Nil (W2) 37,400 + 15,000 = 52,400 (W3) 150,000 + 15,000 = 16,500 Answer to example 5 In 2010/11 Anne is 70 years old Personal allowance Less 1/2 (25,000 - 22,900) Revised Personal allowance
9,490 (1,050) 8,440
Answer to example 6 As Tony is a higher rate tax payer on his employment income, he has a tax liability on his property income of 40%. Kathy has no income and as such is wasting her personal allowance and basic rate banding. It would be better if Kathy were to own the Property such that the property income is assessed on her. The property income of 5,000 will be covered by her personal allowance, so no liability will occur. This will save the couple tax of 2,000 (5,000 40%).
4 PaPer F6 revision answers
income tax - Property business Profit

Answer to example 7 Assessable amount for year 2010/11 Property A 4,000 9/12 Less: Expenses Property B 3,000 8/12 Less: Expenses Wear and tear allowance 10% 2,000 Property Income 2010/11 Answer to example 8 Molly - Property Income for 2010/11: Premium (51-20/50 25000) Rental income 12,000 8/12 Tenant: Relief available 15,500 8,000 23,500 3,000 (1,500) 1,500 2,000 (2,200) (200) (400) 1,100
15, 500 20
775 pa
Property (1) Property (2) total 12.400 4,800
Answer to example 9 (a) Rental income 1) 4 1,000 + 7 1,200 2) 8 600 Less expenses: Redecoration Water rates Gardening Legal fees Mortgage interest Insurance Wear and tear allowance 10% (12,400 150)/4,800 Service charge (11 25) Mortgage interest (11 500)
12,400 4,800
(2,010) (150) (520) (75) (3,700) (305) (1,225)
4,415 (b)
(480) (275) (5,500) (1,455)
(2,010) (150) (520) (75) (3,700) (305) (1,225) (275) (5,500) 2,960
Property Income for 2010/11 = 2,960 If Property (2) was Furnished Holiday letting property then the loss would not have been offset against Property (1) income. The Property income would have been 4,415 for 2010/11, and the loss on Property (2) would be treated as a trading loss for offset against the total income and gains of 2010/11 and/or 2009/10. In addition the loss could be offset against total income of 2007/08, 2008/09 and 2009/10 under new business rules, or carried forward against future profits. In addition the wear & tear allowance would not be available but capital allowances could be claimed on the cost of the furniture instead.
Answer to example 10 (a) Normal assessment Rental income Less expenses Wear & tear allowance 10% 4,750 Property Income Rent a Room with election Rental income less rent a room relief Property Income The Rent a Room relief election should be made. 4,750 (300) (475) 3,975 4,750 (4,250) 500
(b)
income tax - Unincorporated business

Answer to example 11 Net profit per accounts Add back Proprietors wages Depreciation Political donation Purchase of van Fine Legal fees Donation to national charity Entertaining Car expenses (1,200 20%) Profit on goods for own use (400 280) Less: Income from furnished lettings Bank deposit interest Dividends Adjusted profit 30,000 10,000 2,800 76 20,000 750 600 100 300 240 120 34,986 1,800 500 4,200 (6,500) 58,486
6 PaPer F6 revision answers Answer to example 12 Capital allowances year ended 31/12/2010 General pool WDV b/f Additions qualifying for AIA Long life asset Less AIA (Maximum) Additions qualifying for AIA Plant Printing press AIA 30,000 80% expensive car private use (1) 15,000
special rate pool
short life allowances asset (1)
160,000 (100,000) 60,000 40,000 4,000 () 40,000 4,000
100,000
Other additions Motor car CO2 emissions - 111-160g/km Disposals WDA @ 20% Balancing Charge WDA @ 10% WDA @ 20% Additions qualifying for FYA Motor car <110 g/km FYA @ 100% WDV c/f Answer to example 13 Elliot Cost (50,000 < 25% 250,000) Y/e 31/3/2011 to y/e 31/3/2012 WDA: (1% 250,000) 2 years WDV Y/e 31/3/2013 No WDA or Balancing Adjustment in year of sale Answer to example 14 Industrial buildings allowances Felix allowances 400,000 (4,000) 4,000 (4,000) (4,000) 4,000 388,000
11,000 81,000 (2,000) 79,000 (15,800)
15,000 (16,000) (1,000)
60,000 60,000
4,000 4,000 15,800 (800) 6,000 800
1,000 @ 80% (6,000) (800)
18,000 (18,000) 63,200 54,000 3,200
18,000 139,800
250,000 (5,000) 245,000
Cost Y/e 31/3/2011 (400,000 1%) y/e 31/3/2012 (notional) y/e 31/3/2013 WDA 1% WDV
y/e 31/3/2014 - No WDA or Balancing Adjustment in year of sale
Answer to example 15 These form the basis for the assessable amounts for 2009/10 and 2010/11: 2009/10 (Year to 30/9/2009) 17,000 2010/11 (Year to 30/9/2010) 19,000 Answer to example 16 The tax adjusted trading profit assessable amounts are as follows: 2008/09 (1/7/2008 - 5/4/2009) 36,000 9/12 27,000 2009/10 (Year to 30/6/2009) 36,000 2010/11 (Year to 30/6/2010) 42,000 Overlap profits are 27,000 representing 9 months of profit. Answer to example 17 The tax adjusted trading profit assessable amounts are as follows: 2008/09 (1/7/2008 - 5/4/2009) 63,000 9/21 2009/10 (Year to 31/3/2010) 63,000 12/21 2010/11 (Year to 31/3/2011) No overlap profit. Answer to example 18 The tax adjusted trading profit assessable amounts are as follows: 2008/09 (1/9/2008 - 5/4/2009) 40,000 7/10 28,000 2009/10 (1/9/2008 - 31/8/2009) 40,000 + (2/12 54,000) 49,000 2010/11 (Year to 30/6/2010) 54,000 Overlap profits are 37,000 representing 9 months of profit 40,000 36,000 27,000
8 PaPer F6 revision answers Answer to example 19 The tax adjusted trading profit assessable amounts are as follows: 2008/09 (1/7/2008 - 5/4/2009) 66,000 9/22 27,000 2009/10 (6/4/2009 - 5/4/2010) 66,000 12/22 36,000 2010/11 (Year to 30/4/2010) 66,000 12/22 36,000 2011/12 (Year to 30/4/2011) 30,000 Overlap profits are 33,000 representing 11 months of profit. Answer to example 20 The tax adjusted trading profit assessable amounts are as follows: 2009/10 (Year to 30/4/2009) 37,000 2010/11 (23 months from 1/5/2009 to 31/3/2011) (40,000 + 36,000) 76,000 Less overlap profits (25,000) Final assessable amount 51,000 Answer to example 21 The tax adjusted trading profit assessable amounts will be as follows: 2008/09 2009/10 Year to 31/3/2009 12-month period to new accounting date of 30/6/2009 1/7/2008 to 31/3/2009 72,000 9/12 Period to 30/6/2009 Year to 30/6/2010
72,000 54,000 16,000 70,000 90,000
2010/11
The profits of 54,000 assessed in 2009/10 are overlap profits, since they were also assessed in 2008/09. They will be carried forward and would normally be offset when Anne ceases trading. Answer to example 22 The tax adjusted trading profit assessable amounts will be as follows: 2006/07 1/7/2006 to 5/4/2007 27,000 9/12 The profits of 20,250 are overlap profits representing 9 months of profit. 2007/08 Year to 30/6/2007 2008/09 Year to 30/6/2008 2009/10 15-month period to 30/9/2009 Less: Overlap profits 20,250 3/9 20,250 27,000 36,000 45,000 (6,750) 38,250 2010/11 Year to 30/9/2010 54,000
In 2009/10 profits for 15 months are assessed. Because the normal basis of assessment is that only 12 months profits are assessed, Tony is allowed to offset 3 months worth of his overlap profits that arose when he commenced trading. These overlap profits are for a period of 9 months, so the offset is based on a fraction of 3/9.
Answer to example 23 Capital allowances
Pool 15,000 (2,000) 13,000 (2,600) 10,400 ca (2,000) (2,600)
allowances
8 months to 30/6/2009 Addition (Motor car 111-160g/km) WDA 20% 8/12 WDV c/f y/e 30/6/2010 WDA 20% WDV c/f Adjusted profit Profit 36,000 44,000
2,000
2,600
8 months to 30/6/2009 y/e 30/6/2010
tax adjusted trading profit 34,000 41,400
Tax adjusted trading profit assessable amounts: 2008/09 2009/10 2010/11 1/11/2008 to 5/4/2009 34,000 5/8 1/11/2008 to 31/10/2009 34,000 + 41,400 4/12 y/e 30/6/2010
21,250 47,800 41,400
Overlap profits are 35,050 (21,250 + (41,400 4/12)) representing 9 months of profit Answer to example 24 Loss is in 2010/11. Relief may be claimed in 2010/11 and/or 2009/10 against Total income and then gains. In addition the loss may be carried forward against the first available trading profit of the same trade. Answer to example 25 (a) Tax adjusted trading profit assessable amounts: 2007/08 2008/09 2009/10 2010/11 2011/12 2007/08 Actual (1/11/2007 - 5/4/08) 12 months to accounting date (y/e 31/10/2008) CYB (y/e 31/10/2009) CYB (y/e 31/10/2010) CYB (y/e 31/10/2011) Current and Carryback relief 50,000 5/12 Relief available against Total Income of 2007/08 and/or 2006/07 Loss Less: Allocated to 2007/08 Relief available against Total Income of 2008/09 and/or 2007/08 Special opening year relief Relief available against Total Income of 2004/05, 2005/06 and 2006/07 Relief available against Total Income of 2005/06, 2006/07 and 2007/08 Nil Nil 20,000 15,000 27,000 20,833
2008/09
50,000 (20,833) 29,167 20,833 29,167 50,000 (20,000) (15,000) (15,000)
2007/08 2008/09
Carryforward relief Loss Relieved against tax adjusted trading profit 2009/10 2010/11 2011/12
10 PaPer F6 revision answers (b) The most beneficial way for Ken to relieve his loss would be:
The trading loss of 20,833 for 2007/08, should be relieved under special opening year loss relief, against 2004/05 Total Income of 60,000; and the trading loss of 29,167 for 2008/09 should be relieved under special opening year loss relief against 2005/06 Total Income of 60,000. This gives relief as early as possible at a rate of 40%, and avoids wasting personal allowances. Answer to example 26 total 40,000 8,000 48,000 bill 20,000 5,333 25,333 ben 20,000 2,667 22,667
1/1/2010 - 31/10/2010 (10/12) 1/11/2010 - 31/12/2010 (2/12) y/e 31/12/2010 Answer to example 27 Allocation of profits: y/e 30/6/2009 (40,000) y/e 30/6/2010 (54,000) 1/7/2009 31/12/2010 (27,000) 1/1/2010 30/6/2010 (27,000) y/e 30/6/2011 (60,000) Tax adjusted trading profit Assessment 2009/10 CYB y/e 30/6/2009 2009/10 Final year 18m to 31/12/2009 20,000 + 13,500 Less overlap profit
tracy 20,000 13,500 18,000 31,500 40,000 tracy 20,000
Donna 20,000 13,500 13,500
ethel
9,000 9,000 20,000 ethel
Donna
33,500 (15,000) 18,500
First year 2009/10 (1/1/2010 to 5/4/2010) 9,000 3/6 4,500 Second year 2010/11 (1/1/2010 31/12/2010) (9,000 + 6/12 20,000) 19,000 2010/11 CYB y/e 30/6/2010 31,500 2011/12 CYB y/e 30/6/2011 40,000 20,000 Ethel has overlap profits of 4,500 (1/1/2010 to 5/4/2010) and 10,000 (1/7/2010 to 31/12/2010) totalling 14,500
Answer to example 28 2009/10 Income tax computation Total Income Loss relief Net income / Taxable income Capital gains tax computation Gains Less: Trading loss relief Loss memorandum Loss y/e 31/12/2010 Less: 6,000 (6,000) Nil 20,000 (20,000) Nil 2010/11 7,000 (7,000) Nil 16,000 (16,000) Nil 50,000 (6,000) (20,000) (7,000) (16,000) 1,000
Total income Gains Total income Gains Loss to carryforward under against first available trading profit
2009/10 2009/10 2010/11 2010/11
income tax-employee benefits

Answer to example 29 Benefit Accommodation Annual value: Additional charge 4% (250,000 75,000) Expenses Furnishings (20,000 20%)
4,100 7,000 580 4,000 15,680
Answer to example 30 Car 30,000 26% 9/12 (Note) Less: Contribution (20 9) Fuel: 18,000 26% 9/12 5,850 (180) 5,670 3,510
Note: The relevant percentage is 26% (15% + 11% (185 -130)/5). Answer to example 31 2009/10 6,000 20% 2010/11 Greater of: MV at time of transfer MV when first made available Less: Amount charged as benefit 1,200
4,200 6,000 (1,200) 4,800 4,800 (500) 4,300
Higher figure Less contribution Benefit
Pension contributions
Answer to example 32 The maximum pension contributions Tony can make are the greater of 3,600 100% x 20,000= 20,000 His maximum contributions are therefore 20,000. This will be paid net of 20% tax at source i.e. he will only pay 16,000 into his pension fund and HMRC will contribute 4,000. If he were to contribute more than 20,000 into the fund he would only receive tax relief as above As he is only a basic rate taxpayer then there is no inclusion in his income tax computation. You only include the contribution if he is a higher rate taxpayer by extending the basic rate and additional rate bands.
individuals capital Gains tax

Answer to example 33 November 2010 Proceeds Less: Cost Capital Gain Less: Capital loss in the year Less: Annual exemption 140,000 (60,000) 80,000 (4,500) 75,500 (10,100) 65,400 17,772 31/1/2012 (W1) 5,400 18% 60,000 28% 65,400 972 16,800 17,772
CGT payable (W1) Due date
Note: Entrepreneurs relief is not available as this is the disposal of a single asset and is not as part of the sale of the whole business. Answer to example 34 (a) Frederick Asset is a non wasting chattel, cost and proceeds are less than 6,000 so it is exempt. (b) James Asset is a non wasting chattel with cost 6,000 and proceeds > 6,000 i) Normal calculation Proceeds 7,500 Less: Cost (2,000) Gain 5,500 ii) Restriction 5/3 [7,500 6,000] = 2,500 Gain = 2,500 Sam Asset is a non wasting chattel with cost > 6,000 and proceeds 6,000 Deemed Proceeds 6,000 (10,000) Less: Cost Capital loss (4,000)
(c)
Answer to example 35 Proceeds Less: Cost 20 , 000 Capital Gain 6,000
6, 000 6, 000 + 28, 000
(3,529) 2,471
Answer to example 36 The asset is damaged - This is a part disposal but as all of the insurance proceeds are used for restoration and an election is made, the proceeds can be rolled over against the allowable cost when the asset is eventually sold. June 2011 - No gain Date of disposal is June 2011 when insurance money is received. when the asset is eventually sold: Proceeds Acquisition cost Less insurance proceeds Restoration costs Capital Gain X 500,000 (60,000) (440,000) (70,000) X
If no election had been made then a capital gain would have arisen in June 2011 as follows: Proceeds 60,000 60, 000 Cost 500, 000 60, 000 + 1, 000, 000 Capital Gain (28,302) 31,698
On a subsequent sale the acquisition cost will be 500,000 28,302 = 471,698 Also a deduction for the restoration costs can be made of 70,000 Answer to example 37 Disposal 1 January 2011 Proceeds Less Acquisition cost Capital Gain Less gain deferred (W1) Chargeable Gain 36,000 (25,000) 11,000 (9,000) 2,000
(w1) The proceeds are reinvested, but have only been partially reinvested. Gain chargeable now = Proceeds received 36,000 Less replacement asset (34,000) Chargeable Now 2,000 Available to defer (11,000 2,000) 9,000 When the new asset is sold: Cost Less: Gain deferred Base cost 34,000 (9,000) 25,000
14 PaPer F6 revision answers Answer to example 38 Proceeds Less cost 18,000 2/5 Capital Gain Answer to example 39 Next 30 day acquisitions 11/11/2010 Match with the share pool acquisition(s) share pool 6/10/1990 1/12/1993 1:4 bonus 1/8/2002 36,000 (7,200) 28,800
1,800
800 1,000 1,800 450 500 2,750
Match with 1,750 (3,550 1,800) shares from the share pool. Answer to example 40 Gains not qualifying for Entrepreneurs relief Investment property Less Capital losses b/f (Note 1) Less Annual exemption (Note 1) CGT @ 28% (Note 2) Gains qualifying for Entrepreneurs relief Sale of business Freehold factory Goodwill Warehouse Sale of shares Gain CGT @ 10% (Note 1) 120,000 (20,000) 100,000 (10,100) 89,900 25,172
200,000 350,000 (150,000) 400,000 700,000 1,100,000 110,000 Total CGT 25,172 + 110,000 = 135,172 Due date for payment on 31/1/2012
Note 1: The capital loss b/f and the annual exemption are offset against the gains not qualifying for entrepreneurs relief as they will be the subject to a higher tax rate than gains qualifying for entrepreneurs relief. Note 2: Although Kit has some remaining basic rate band after her taxable income, this is deemed to have been utilised.by gains qualifying for entrepreneurs relief. Note 3: The maximum gains on which entrepreneurs relief is available is 5,000,000, so all of the 1,100,000 is eligible. The remaining lifetime limit of (5,000,000 1,100,000) 3,900,000 is available for future gains qualifying for entrepreneurs relief.
Answer to example 41 March 2011 Proceeds Less: Cost Less gain rolled over Chargeable gain (750,000 700,000) Base cost of the factory Cost Less: Gain rolled over 750,000 (100,000) 650,000 (600,000) 50,000 700,000 (600,000) 100,000
Entrepreneurs relief is not available on the sale of the land as it was not the sale of the entire business Answer to example 42 Proceeds (MV) Less: Cost Less: Gift relief Chargeable gain (40,000 25,000) Kriss base cost Cost (MV) Less: Gift relief 75,000 (25,000) 50,000 (35,000) 15,000 75,000 (35,000) 40,000 Entrepreneurs relief is not available as it was not the sale of the entire business Answer to example 43 Indexed gain Less: PPR relief (W1) Less: Letting relief (W2) Chargeable gain (W1) 6/7/1991 6/7/1996 6/7/1996 6/1/2006 (Elsewhere in the UK + any other reason) 6/1/2006 6/1/2008 (part of last 3 years) 6/1/2008 6/7/2010 1/2 year 2 1/2 years 15 years PPR 15/19 190,000 = 150,000 (W2) Letting relief lower of 150,000 40,000 21 2 190, 000 = 25, 000 19 2 1/2 years 11/2 years 19 years 11/2 years actual and Deemed occupation 5 years 7 years 2 1/2 years 190,000 (150,000) 40,000 (25,000) 15,000 Letting absent
inheritance tax
Answer to example 44 Lifetime 1) 23/10/2003 CLT Less Annual exemptions: 2003/04 2002/03 b/f Nil rate band at gift Less chargeable transfers in previous 7 years from gift (12/11/1996 12/11/2003) 255,000 () (255,000) Covered by the Nil rate band 2) 15/12/2003 PET Less Annual exemptions: 2003/04 - used No lifetime tax on a PET 3) 18/3/2007 PET Less Marriage exemption Less Annual exemptions: 2006/07 2005/06 b/f No lifetime tax on a PET 4) 26/8/2009 CLT Less Annual exemptions: 2009/10 2008/09 bf Nil rate band at gift Less chargeable transfers in previous 7 years from gift (26/8/2002 26/8/2009) 325,000 (194,000) (131,000) 113,000 28,250 250,000 (3,000) (3,000) 244,000 175,000 (1,000) (3,000) (3,000) 168,000 50,000 () 50,000 200,000 (3,000) (3,000) 194,000
IHT at 25% Payable by Jasper Due date 30/4/2010 Gross chargeable transfer 244,000 + 28,250 = 272,250 Death tax on lifetime gifts Date of death 28 February 2011 Gifts on or after 28 February 2004 1) 2) 12 November 2003 - No additional tax on the CLT 15 December 2003 - The PET is exempt
3) 18/3/2007 PET is now chargeable Value of PET after exemptions Nil rate band at death Less chargeable transfers in previous 7 years from gift (18/3/2000 18/3/2007)
168,000
325,000 (194,000) (131,000) 37,000 14,800 (2,960) 11,840
IHT at 40% Less taper relief 3 4 years 14,800 20% IHT payable Payable by Jaspers nephew Due date for payment 31/8/2011 4) 26/8/2009 Additional tax on CLT Gross chargeable transfer Nil rate band at death Less chargeable transfers in previous 7 years from gift (26/8/2002 - 26/8/2009)
272,250 325,000 (194,000) (168,000) 272,250 108,900 () 108,900 (28,250) 80,650
IHT at 40% Less taper relief < 3 years Less lifetime tax Additional IHT payable Payable by the trustees of the trust Due date for payment 31/8/2011 Death estate Date of death: 28 February 2011 House Less Repayment mortgage Bank Account Cash ISA Motor vehicles Less Debts Credit card debts Less Funeral expenses Less Exempt transfers Wife Chargeable Estate Nil rate band at death Less chargeable transfers in previous 7 years from death (28/2/2004 28/2/2011) 500,000 (100,000)
400,000 220,000 10,000 35,000 (2,000) (7,000) (400,000) 256,000 325,000 (168,000) (272,250)
IHT at 40% Payable by the personal representatives Suffered by Jaspers daughter Due date for payment 31/8/2011
256,000 102,400
corporation tax
Answer to example 45 Year ended 31 March 2011 Trading profit Interest Receivable (20,000 + 30,000) Less: Gift Aid payment Taxable Total Profits Augmented Profits (329,000 + 4,500 100/90) Corporation tax 329,000 28% Less: 7/400 (1,500,000 334,000) 329,000/334,000 Corporation tax liability Answer to example 46 Adjustment to profit before tax Profit before tax per accounts Add back Directors salary Depreciation Gift Aid payment Purchase of van Fine Legal fees Lease amortisation Christmas party for staff Political donation Entertaining customers Expenses of car used by Director Goods taken by Director Less: Income element of lease amortisation (note 1) Income from furnished lettings Bank deposit interest Dividends Adjusted profit Note: (1) Allowable element of lease amortisation 51 21 42, 000 = 25, 200 Income element 50 25, 200 Annual deduction = 1, 200 21 (2) No private use adjustments are required but the director may be subject to a benefit charge. 90,000 2,800 180 20,000 750 600 2,000 100 300 1,200 1,800 500 4,200 (7,700) 109,030 280,000 50,000 330,000 (1,000) 329,000 334,000 92,120 (20,100) 72,020
Answer to example 47 Capital allowances - year ended 31/12/10 General pool expensive car (1) (private use) 30,000 15,000 160,000 (100,000) 60,000 Additions Qualifying for AIA Plant Printing Press AIA - used Balance qualifying for FYA @ 40% Other additions Car CO2 emissions of 111-160g/km Disposal WDA @ 20% Balancing charge WDA @ 10% WDA @ 20% Additions qualifying for FYA Motor car < 110g/km FYA @ 100% WDV c/f Answer to example 48 y/e 31 March 2011 Tax adjusted trading profit (500,000 20,000) Interest Receivable (24,000 + 28,500) Less: Gift Aid Taxable Total Profits Answer to example 49 November 2010 Proceeds Less: Cost IA 60,000 0.358 Less: Capital loss in Accounting period Net Chargeable Gain 480,000 52,500 532,500 (1,800) 530,700 40,000 4,000 () 40,000 4,000 special rate pool short-life asset (1) allowances
WDV b/f Additions Qualifying for AIA Long life asset Less AIA (MAX)
100,000
11,000 81,000 (2,000) 79,000 (15,800)
15,000 (16,000) (1,000) 1,000
60,000 60,000
4,000 4,000 15,800 (1,000) 6,000 800
(6,000) (800)
18,000 (18,000) 63,200 54,000 3,200
18,000 139,600
140,000 (60,000) (21,480) 58,520 (4,500) 54,020
20 PaPer F6 revision answers Answer to example 50 Matching rules Same day x 1) 2) Previous 9 days 4 Jan 2011 Proceeds 2, 000 50, 000 5, 000
2,000 shares 20,000 (4,500) 15,500 share pool n cost 1,500 1,500 1,500 4,000 5,500 5,500 1,138 6,638 6,638 (5,106) 30,000 (5,106) 24,894 (2,492) 22,402 15,500 22,402 37,902 1,000 250 1,250 157.5 136.3 1, 500 136.3 1,250 2,000 3,250 3,250 650 3,900 3,900 (3,000) indexed cost 1,500 1,500 233 1,733 4,000 5,733 593 6,326 1,138 7,464 2,414 9,878 (7,598)
Less: Cost Gain 3) 1/4/82 - previous 10 days Feb 1992 Bonus 1:4 Index to July 1997 from Feb 1992 Purchase July 1997 Index to Feb 2002 173.8 157.5 5, 733 157.5
Rights issue 1.5 @ 1.75 each Index to Jan 2011 Sale 3, 000 50, 000 Proceeds 5, 000 Less: Cost Unindexed Gain Less: IA (7,598 5,106) Chargeable gain Summary (1) (2) Total chargeable gain to include in the corporation tax computation Answer to example 51 March 2011 Proceeds Less: Cost Less: IA 100,000 70% Less gain rolled over Gain charged now (750,000 700,000) Base cost of land Cost Less: Gain rolled over
230.0 173.8 7, 464 173.8
750,000 (100,000) (70,000) 580,000 (530,000) 50,000
700,000 (530,000) 170,000
Answer to example 52 Years ending 31 December 2009 2010 2011 10,000 42,000 (4000) 2,000 (12,000) Nil 2,000 (2,000) Nil 2,000 40,000 (1,000) 39,000
Tax adjusted trading profit Less: Carry forward Interest Income Less: Current year & carryback relief Less: Gift Aid Taxable Total Profit
The gift aid for the years ended 31/12/2009 and 31/12/2010 are wasted. Loss memorandum Loss y/e 31/12/2010 Less: current year y/e 31/12/2010 Carry back y/e 31/12/2009 Carry forward y/e 31/12/2011 18,000 (2,000) (12,000) (4,000)
Answer to example 53 9/12 Z Ltds loss of 120,000 = 90,000 9/12 T Ltds profit of 100,000 = 75,000. the maximum is therefore 75,000 The claim is made by the claimant company; the consent of the surrendering company is required. Answer to example 54 J Ltd should claim group relief of 50,000 for y/e 31 March 2011 to reduce profits to the small profit limit. K Ltd should relieve 40,000 against y/e 31 March 2010 under the carryback provisions to reduce profits to the small profit limit. The balance of loss 30,000 is best relieved under the carryback provisions as it results in an immediate tax refund (note that the group relief claim is made first, and the balance of the loss is dealt with under current and carryback relief ). Summary J Ltd Taxable Total Profits Less group relief Revised Taxable Total Profits K Ltd Tax adjusted trading profit Less: carryback relief Taxable Total Profit Answer to example 55 Taxable Total Profit Corporation Tax @ 28% DTR total 1,660,000 464,800 (4,800) 460,000 UK 1,500,000 420,000 420,000 overseas 160,000 (W1) 44,800 (4,800) 40,000 y/e 31/3/2010 500,000 500,000 190,000 (70,000) 120,000 y/e 31/3/2011 200,000 (50,000) 150,000 -
Double taxation relief is restricted to the overseas tax on the overseas income, as this is less than the UK tax payable of 44,800. (W1) Rental income Withholding tax at 3% 155,200 4,800 160,000
income tax seLF assessment

Answer to example 56 Payments on account will be due for 2010/11 as follows: 31/1/2011 (7,300 + 700 = 8,000/2) 4,000 31/7/2011 4,000 Answer to example 57 The balancing payment for 2010/11 will be: Total tax liability Less: Payments on account Balancing payment due 31/1/2012 First payment on account for 2011/12 (8,300 + 800)/2 = 4,550 Total due 31 January 2012 = 10,250 13,700 (8,000) 5,700
income tax PaYe coDinG

Answer to example 58 Allowances Personal allowance PPP (paid net of BRT) Expense deductions Less: Deductions Benefits Untaxed income Tax underpayments b/f (150 100/20) 320 250 750 1,320 5,275 Maureens code for 2010/11 527L 6,475 120 6,595
corPoration tax seLF assessment

Answer to example 59 Corporation tax = 2,000,000 @ 28% = 560,000 As the company is large, the corporation tax is due for instalments. y/e 31 March 2011 (1/4/2010 31/3/2011) 14 October 2010 140,000 14 January 2011 140,000 14 April 2011 140,000 14 July 2011 140,000 The company has a filing date of 31 March 2012 for the corporation tax computation y/e 31 March 2011.
vat
Answer to example 60 Taxable turnover in first 12 months 1/6/2010 31/5/2011 was 57,000 (4,000 10) +(8,500 2). The position thereafter is: End of June 2011 57,000 + 8,500 4,000 = 61,500 61,500 + 8,500 4,000 = 66,000 End of July 2011 End of August 2011 66,000 + 8,500 4,000 = 70,500 YR Ltd exceeds the threshold at the end August 2011. Notify HMRC by 30 September 2011. Registration is effective from 1 October 2011. Answer to example 61 From 1 June 2010 to 31 March 2011 the value of Dolphin Ltds taxable supplies was 30,000. So it is not yet required to register using the historical test. But using the future test on 1/4/11 the company expects its taxable supplies in the next 30 days to exceed 70,000. It is required to register immediately ie from 1 April 2011. Notify HMRC by 1 May 2011. Answer to example 62 output vat (100,000 97%) 20% input vat 20 Standard rated purchases [ 61, 250 2, 250 ] 120 20 (Note 1) Irrecoverable debts 7, 875 120 (> 6 months old) , Machine 11750 20 120 (9,833) (1,313) 19,400
(1,958) 6,296
VAT Payable 30 July 2011
Note: No VAT recovery on customer entertaining or cars with any private use. Answer to example 63 Without using the flat rate scheme a) 20 Output VAT 70, 500 120 20 , Input VAT 11750 120 VAT payable b) 11,750 (1,958) 9,792
Using flat rate scheme 75,500 9% = 6,795 Using the scheme saves 2,997 (9,792 6,795) in y/e 30 June 2011 and the VAT administration is simplified.
Answer to example 64 Quarter 30/6/2010 30/9/2010 31/12/2010 Due 31/7/2010 31/10/2010 31/1/2011 submitted 15/8/2010 31/10/2010 consequences Surcharge liability notice issued. Period of notice until 30 June 2011
31/1/2011 First default in notice period. Surcharge penalty 2% 40,000 = 800. But payment 10/2/2011 Also notice period extended to 31 December 2011
Answer to example 65 the advantages of group vat registration are: No VAT is accounted for on transactions between group members within the VAT group Only one VAT return is submitted for the group; therefore an administrative advantage. The group can choose which companies to include or exclude (beneficial to exclude a zero rated company) the disadvantages of group vat registration are: The limits for Cash and Annual Accounting schemes will apply to the group as a whole and not on an individual company basis. Joint and several liability of each company in the group Possible administration issues collecting information to be passed on to the representative member. Two or more companies can register as a group for VAT purposes. They must be under common control of a third company and resident in the UK The group is treated for VAT purposes as if it were a single company registered for VAT on its own. A representative member of the group is appointed and this company is responsible for completing and submitting a single VAT return and paying the VAT on behalf of the group. All companies in the VAT group are jointly and severally liable for any VAT liabilities of the group. Answer to example 66 The exports to a New Zealand business customer will be zero rated as it is an export of goods to a non EU country The dispatch to German non business customer will be standard rated, so output VAT will be 50,000 20% = 10,000 The import of 150,000 of goods from an Australian business supplies will result in Mars Ltd paying VAT @ 20% ie 150,000 20% = 30,000 to HMRC at point of entry into the UK. (This is assuming that Mars Ltd does not use the duty deferment scheme). This can be then recovered as input VAT. The acquisition of goods valued at 75,000 from a business supplier in France will result in Mars Ltd accounting for output VAT of 75,000 20% = 15,000 as a self-supply. The self supply output VAT of 15,000 can also be recovered as input VAT. Quarter to 30 June 2011 vat return extract output vat Export of goods to EU non business customer 50,000 20% Self supply on acquisition from EU supplier 75,000 20% input vat Import of goods from non EU supplier 150,000 20% Self supply on acquisition from EU supplier 75,000 20% 10,000 15,000
(30,000) (15,000)

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DeCember 2011 exAminAtions

Income Tax - Individuals