ACCA F6 FA09 Study Text 2010

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Chapter 23: Value Added Tax

(9) rate of VAT for each supply

(10) VAT-exclusive amount for each supply

(11) total VAT-exclusive amount

(12) amount of VAT payable.

Retailers to the general public are only required to issue a VAT invoice if requested

to do so by the customer.

Retailers are allowed to issue less detailed VAT invoices if the taxable supply is no

more than £250 (including VAT).

A retailer’s VAT invoice must contain the following information:

(1) name and address of the retailer

(2) VAT registration number

(3) tax point date

(4) quantity and description of the goods supplied

(5) rate of VAT for each supply

(6) consideration for the supply

(7) rate of VAT in force.

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VAT penalties

 Default surcharge

 Default interest

 Errors in a VAT return

6 VAT penalties

6.1 Default surcharge

A default surcharge is levied where a VAT return is submitted late or the payment

of VAT is late.

The mechanics of the default surcharge system are as follows:

 A surcharge liability notice is issued when the return or payment is made late.

The notice specifies a default notice period which is normally 12 months.

 If within the default notice period a further default occurs (i.e. another return is

submitted late or another payment is made late):

(a) A default surcharge is levied at the following rates:

Number of defaults

Surcharge = appropriate %

of tax paid late

1 2%

2 5%

3 10%

4 15%

(b) The default notice period is extended by another 12 months.

HMRC do not collect the surcharge at the 2% or 5% rate if it is less than £400.

However, there is a minimum charge of £30 at the 10% and 15% rates.

Note that the rates of surcharge are not provided in the examination.

Example

SQ Ltd has submitted its VAT returns as follows:

Quarterended VATpaid DatereturnsubmittedandVATpaid

 £

30Se

tember2008 3,100 5December2008

31December2008 11,300 2March2009

31March2009 4,300 25A

ril2009

30June2009 7,600 24Jul

2009

30Se

tember2009 1,900 25October2009

31December2009 3,200 27Januar

2010

31March2010 6,900 16Ma

2010

Chapter 23: Value Added Tax

Required

Explain whether a default surcharge will be levied on SQ Ltd.

Answer

The 30 September 2008 return is submitted late. A surcharge liability notice will be

issued, specifying a default notice period of 12 months to 30 September 2009.

The 31 December 2008 return is also submitted late and therefore:

 a default surcharge of £226 (2% × £11,300) will be levied, but not collected by

HMRC as it is below £400, and

 the default notice period will be extended to 31 December 2009.

The next four returns for the quarters ended 31 March 2009, 30 June 2009, 30

September 2009 and 31 December 2009 are all submitted on time. Therefore no

default surcharges are levied and the default notice period expires.

The 31 March 2010 return is submitted late. As there is no current default notice in

existence, no default surcharge is levied. However, HMRC will issue a new default

surcharge notice, specifying a notice period to 31 March 2011.

6.2 Default interest

Default interest is charged on any unpaid amount from the date the VAT should

have been paid to the date of payment.

6.3 Errors in a VAT return

If a taxpayer notices a misdeclaration or error before an investigation by HMRC,

and the net effect of the misdeclaration/error does not exceed the higher of £10,000

or 1% of the turnover for the VAT period, the trader is allowed to correct the

mistakes in the next VAT return. No separate disclosure is required.

If the net effect exceeds the higher of £10,000 or 1% of the turnover for the VAT

period, separate disclosure to HMRC is required.

A penalty may be imposed in both of the above cases. It is determined according to

the same penalty regime that applies to incorrect self assessment income tax and

corporation tax returns. (See previous chapter.)

Paper F6: Taxation FA2009 (UK)

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Paper F6 (UK)

Taxation FA2009

Q&A

Practice questions

Contents

Page

Introduction to income tax

1 Angela 432

2 Brian 432

Income from property

3 Paul 432

Employment income

4 Flash plc 433

5 Richard 433

Unincorporated businesses

6 Colin 434

7 Ashley and Cheryl 435

8 Daniel 435

9 Industrial building 436

10 Hannah 437

11 Ian 437

12 Trading loss 438

13 Loss relief in the opening years 438

14 Terminal loss relief 439

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Partnerships

15 Partnership profit 439

16 Change in partnership 439

17 Partnership loss 440

Pension contributions and national insurance

18 Stephen Honiton 440

19 Pension contributions 441

20 Class 1 NICs 442

21 Class 4 NICs 442

Capital gains tax

22 Val 442

23 Anthony 442

24 Barry 443

Corporation tax

Introduction to corporation tax and PCTCT447

25 AB Ltd 443

26 EF Ltd 444

27 GH Ltd 444

28 Change of accounting date 444

29 Trading income statement 445

30 Adjustment of profit and PCTCT 447

Capital allowances

31 OP Ltd 448

32 RS plc 448

Chargeable gains

33 Net chargeable gain 450

34 Replacement office building 450

35 Bonus issue and share disposal 450

36 Rights issue and share disposal 451

37 Takeover and share disposal 45

Practice questions

Trading losses

38 FG Ltd: loss relief 451

39 HI Ltd: loss relief 451

Overseas aspects

40 DTR 452

41 Overseas branch or non-UK resident

company

452

Groups

42 UK group 453

43 PQ group 454

Self assessment and PAYE

44 Payment of tax 454

45 Candice 454

Value Added Tax

46 Registration 455

47 WX Ltd 455

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1 Angela

For 2009/10 Angela received a salary of £35,000, building society interest of £2,400,

UK dividends of £9,000 and a premium bond prize of £150.

Required

Calculate Angela’s income tax liability for 2009/10.

2 Brian

Brian has the following income and payments in 2009/10:

Income

Self employment profits 20,000

Employment income 25,660

Bank deposit interest 4,100

Income from an ISA (Individual Savings Account) 260

Dividends received from UK companies 1,890

National Lottery winnings 140

Payments Gift Aid donation 480

Allowable interest 200

Income tax of £8,287 was deducted from Brian’s employment income under the

PAYE system.

Required

Calculate the income tax payable by Brian for 2009/10.

3 Paul

Paul owns a furnished house which he rents out.

The annual rent was £8,000, but was increased to £8,800 per year with effect from 6 January

2010. It is payable in advance by equal monthly instalments on the 6th of each month. The

tenants paid all the rent on time with the exception of that due for 6 March 2010, which was

not received until 2 May 2010.

Paul incurred the following expenditure on the property during 2009/10:

Council tax £960

Water rates £380

Agent’s fees £780

Re-decoration costs £1,250

New central heating system £2,400

Mortgage interest £2,500

Required:

(a) Calculate the amount of property income assessable on Paul for 2009/10.

(b) Outline the conditions that Paul would have to fulfil for the letting to be classed as a

furnished holiday letting.

Practice questions

4 Flash plc

During 2009/10 Flash plc provided the following benefits to its employees:

(1) Arthur was provided with a new diesel-powered company car on 6 August 2009.

The car had a list price of £13,500 and an official CO

emission rate of 137 g/km.

Arthur made no capital contribution towards the car and makes no regular

contributions to its use. Arthur was provided with fuel for private use.

(2) Benny was provided with a new petrol-powered company car throughout

2009/10. The car had a list price of £20,800 and an official CO

emission rate of

203 g/km. Benny contributed £4,400 towards the purchase of the car. Benny

was provided with fuel for private use.

(3) Charlotte was provided with a new petrol-powered company car throughout

2009/10. The car had a list price of £22,600 and an official CO

emission rate of

264 g/km. Charlotte paid Flash plc £1,200 during 2009/10 for the use of the

motor car. Charlotte was provided with fuel for private use and paid Flash plc

£600 towards the cost of private fuel, although the actual cost of her private

fuel was £1,000.

(4) Flash plc does not provide Daphne with a company car, but reimburses her

with 30p per mile for the use of her own 1,800 cc car on business journeys.

During 2009/10 Daphne drove 12,000 miles in the performance of her duties.

The relevant HMRC authorised mileage allowances are 40 pence per mile for

the first 10,000 miles, and 25 pence per mile thereafter.

(5) Ernest was provided with a new diesel-powered company van on 6 May 2009.

The van had a list price of £18,600 and an official CO

emission rate of 240

g/km. Ernest is provided with fuel for private use.

Required

Calculate the benefits assessable on the employees of Flash plc in 2009/10.

5 Richard

Richard is the finance director of RS plc. In addition to an annual salary of £56,000

he is entitled to a bonus calculated on a formula applied to the company’s annual

audited profits. The company prepares accounts to 31 January each year: the bonus

is paid to Richard four months later.

Recent bonuses have been:

y/e 31 January 2008

20,000

y/e 31 January 2009 22,000

y/e 31 January 2010

18,500

Richard also received the following benefits.

(1) Overnight expense allowance of £60 for three nights staying away in London

on a business trip.

(2) Annual staff party which cost the company £75 a head.

Paper F6 (UK): Taxation FA2009

(3) A loan of £30,000 to help him buy a boat. Richard repaid £5,000 of the loan on

6 July 2009. The company charged him £525 interest.

Richard paid his annual subscription of £150 to the ACCA and made a donation of

£100 to charity via the company’s approved payroll giving scheme.

Assume the official rate of interest is 4.75% and calculate the beneficial loan benefit

using both the average and the strict basis.

Required

Calculate Richard’s employment income for 2009/10.

6 Colin

Colin started to trade on 1 July 2009. He prepared accounts for the period to 31

January 2010 which show the following:

Sales

316,000

Cost of sales (162,000)

–

–––––––––––––––––––––––––––––––––

–

––––––

–

Gross profit 154,000

Expenses

(86,250)

–

–––––––––––––––––––––––––––––––––

–

––––––

–

Net profit 67,750

–

–––––––––––––––––––––––––––––––––

–

––––––

–

Included in expenses are the following items:

Depreciation 26,000

Colin’s income tax and National Insurance 6,400

Hire charge 5,600

Royalties payable 2,000

Legal fees relating to the collection of debts 1,260

Write off of a loan to a customer 2,250

Car expenses 3,400

During the period items of stock were taken out of the business by Colin for his own

private use. The items cost £60 and have a market value of £120. No entry has been

made in the accounts in respect of this transaction.

The hire charge relates to a car with a list price of £20,000 and CO

emissions of 175

g/km. The car was used by the sales manager.

Half of the car expenses relate to Colin’s car and half to the sales manager’s car.

Colin uses his car 80% for business purposes. The sales manager’s private mileage

amounts to 10% of the total mileage.

Required

Calculate the adjusted profits for the period ended 31 January 2010.