ACCA F6 FA09 Study Text 2010

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Answers to practice questions

Trading income assessments of Ken (retiring partner)

Ceased to trade: 1 February 2009. This is in the tax year 2008/09.

Penultimate tax year = 2007/08: CYB year ended 30.6.2007

Final tax year = 2008/09

Profits not yet assessed

Year ending 30.6.2008

8,000

Period ending 31.1.2009

6,300

–––––––––––––––––––––––––––

–

14,300

Minus: Overlap profits

(2,000)

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–

Closing year trading income assessment 12,300

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–

17 Partnership loss

(a) Allocation of partnership loss: year ending 31 March 2010

Total Peter Paul Mary

£ £ £ £

9 months 1 April to 31 December 2009

Salary (£16,000 or £28,000 × 9/12) 33,000 12,000 21,000 -

Balance of the loss (65%:35%) (109,200) (70,980) (38,220) -

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(76,200) (58,980) (17,220) -

Period 1 January 2010 to 31 March 2010

Balance of the loss (2:2:1) (25,400) (10,160) (10,160) (5,080)

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Allocation of loss (101,600) (69,140) (27,380) (5,080)

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(b) Loss relief options

Peter and Paul (continuing partners)

Tax year of the loss = 2009/10

Peter and Paul have the following options with their share of the loss:

 Claim s64 relief against total income in:

− 2009/10 and/or

− 2008/09

 Extend the claim against capital gains in the same years.

 Claim additional relief against trading profits of 2007/08 and 2006/07.

 Carry forward the loss against future trading profits under s83.

Peter and Paul will make their own decisions independently, according to

their own personal circumstances. They are not both obliged to make the same

claims.

Mary (new partner)

Opening year loss = 2009/10

Paper F6 (UK): Taxation FA2009

476 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

Actual loss 1.1.2010 – 31.3.2010 = £5,080.

Mary has the following options with her share of the loss:

 Claim s64 relief against total income in:

− 2009/10 and/or

− 2008/09

 Extend the claim against capital gains in the same years.

 Claim s72 relief against total income in:

− 2006/07 and then

− 2007/08 and then

− 2008/09.

 Carry forward the loss against future trading profits under s83.

Peter Paul Mary

£ £ £

Partner’s share of loss 69,140 27,380 5,080

Partner’s contribution (i.e. capital balance) 100,000 25,000 10,000

Peter and Mary have losses below the level of their contributions. Therefore

their loss relief options are not restricted.

Paul can only claim £25,000 of his share of the loss against non-partnership

income.

His claims against total income under s64 and extension claim against capital

gains under s261B are therefore restricted.

The remaining loss of £2,380 (£27,380 - £25,000) can only be carried forward

and set against future partnership income.

18 Stephen Honiton

Stephen Honiton: Employment income 2009/10 £

Salary

32,000

Assessable benefits

Employer pension contributions (7%) = exempt

Nil

Living accommodation (W1)

3,750

Car benefits (W2)

4,210

Medical insurance – cost to employer

480

Subsidised meals – exempt

Nil

Workplace nursery – exempt

Nil

Holiday prize – cost to employer

1,200

Staff loan scheme

Nil

Write-off of loan

3,000

–––––––––––––––––––––––––––––––––

–

44,640

Answers to practice questions

Allowable deductions:

Employee pension contributions (£32,000 × 5%)

(1,600)

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–

Employment income 43,040

–––––––––––––––––––––––––––––––––

–

Notes

1. There is no private fuel benefit as Stephen pays for his petrol and is reimbursed

for business travel only. Therefore the company does not pay for any private

fuel. Stephen’s wife pays for all her petrol.

2. There is no beneficial loan charge as the sum borrowed does not exceed £5,000.

Workings

(W1) Living accommodation

£ £

Capital benefit = annual value

1,700

Expensive accommodation benefit

Nil

(= Not applicable as the property cost less than £75,000)

Revenue benefit

Electricity 280

Gas 410

Gardener 240

Re-decoration 680

–––––––––––––––––––––––––

1,610

Provision of furniture: (£6,400 × 20%)

1,280

–––––––––––––––––––––––––––––

4,590

Minus: Contribution towards benefit (£70 × 12)

(840)

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Total living accommodation benefits

3,750

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(W2) Car benefits

Stephen’s

car

Wife’s car

Stephen’s

car

Wife’s car

petrol % petrol %

emissions (rounded

down to nearest 5 g/km)

160 135

Base level (135) (135)

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25 Nil ÷ 5 5 Nil

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Minimum percentages

15 15

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Appropriate percentages

20 15

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Stephen’s car

Manufacturer’s list price 16,400 × 20% 3,280

Wife’s car

Manufacturer’s list price 6,200 × 15% 930

4,210

Paper F6 (UK): Taxation FA2009

478 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

19 Pension contributions

AsHamishhasearningsinexcessofhiscontribution,allofhiscontributionwillqualify

fortaxrelief.Thepremiumwillhavebeenpaidnetofbasicratetax.Higherraterelief

willbegivenbyextendingthebasicrateband bytheamountofthecontribution.



However,there will beatax chargeof 40

% onthe amountby whichthecontribution

exceedstheannual allowance.



Herbert’sinc ometaxliabi litywillther eforebeas follows:

Trading income 350,000

Less: Personal allowance (6,475)

_______

Taxable income 343,525

_______

Income tax liability

On 287,400 @ 20% 57,480

56,125 @ 40% 22,450

_______

79,930

Excess contribution charge (250,000 – 245,000) × 40% 2,000

_______

81,930

_______

Basic rate band 37,400

Add: Gross value of pension contributions. 250,000

_______

287,400

_______

20 Class 1 NICs

Class 1 primary and secondary contributions are based on cash earnings.

Salary = Cash earnings = £45,000.

Note

Cash earnings exclude all the benefits received by Vanessa. The donation under the

payroll giving scheme is ignored as expense deductions are not allowed for NIC

purposes.

Class 1 primary contributions

(£43,875 – £5,715) × 11% 4,198

(£45,000 – £43,875) × 1% 11

4,209

Class 1 secondary contributions

(£45,000 – £5,715) × 12.8% 5,028

Answers to practice questions

Class 1A contributions

Class 1A contributions are based on the benefits received by Vanessa, but excluding

the employer’s pension contributions as these are exempt.

Car benefit 6,450

Fuel benefit 4,320

Living accommodation 1,800

Total benefits liable to Class 1A NICs 12,570

Class 1A NICS (£12,570 × 12.8%) 1,609

21 Class 4 NICs

William

Wendy

Class 4 NICs

(£25,000 – £5,715) × 8%

£1,543

(£43,875 – £5,715) × 8%

3,053

(£50,000 – £43,875) × 1%

3,114

22 Val

Val: Capital gains tax liability Gains

Garnet Ltd shares (W1) 45,000

Ruby plc shares (W2)

60,000

Holiday cottage (W3)

111,000

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–

216,000

Minus: Annual exemption

(10,100)

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Taxable gain 205,900

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Capital gains tax at 18% 37,062

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Due date for payment: 31 January 2011

Workings

(W1) Garnet plc shares

Gross sale proceeds (May 2009)

55,000

Minus: Cost (June 2001) (10,000)

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Gain 45,000

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Paper F6 (UK): Taxation FA2009

480 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

(W2) Ruby plc shares £

Gross sale proceeds (June 2009)

66,000

Minus: Cost (July 1988)

(6,000)

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Gain

60,000

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(W3) Holiday cottage £

Gross sale proceeds (November 2009)

128,000

Minus: Cost (May 1992)

(17,000)

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Gain

111,000

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23 Anthony

Anthony: Capital gains tax liability Gains

Shares purchased 22 April 2009 13,500

Pool shares

75,136

Shares in S Ltd

8,710

Investment land

(4,000)

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–

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Net gains for the year 93,346

Minus capital losses b/f

(16,150)

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Total net gains 77,196

Minus: Annual exemption

(10,100)

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Taxable gain 67,096

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Capital gains tax at 18% 12,077

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Workings

(W1) R plc shares

Matching rules

Number

of shares

held

Disposal

18 April

2009

Remaining

1: Acquisition in following 30 days

22 April 2009 11,000

(11,000)

Nil

2: Pool shares 50,000

Rights issue (1 for 10) 5,000

55,000

(29,000)

26,000

(40,000)

26,000

Chargeable gain on the disposal of shares acquired on 22 April 2009

(11,000 shares)

Market value (11,000 × £4.50) 49,500

Minus: Cost of shares

(36,000)

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Gain 13,500

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Answers to practice questions

No gift relief is available as the shares are not qualifying assets for gift relief

purposes. Gift relief is only available on quoted shares if the donor owns at least a

5% interest in the company.

Pool

Number of shares Original cost

16 October 1996 50,000 75,000

10 August 2007

Rights issue (5,000 × £6)

5,000 30,000

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55,000 105,000

18 April 2009

Gift to daughter

(29,000) (55,364)

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Pool balance c/f 26,000 49,636

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Shares from the pool are removed at average cost:

£105,000 × 29,000/55,000 = £55,364

(W2) Plot of investment land

Gross sale proceeds (February 2010) 10,000

Minus: Cost (September 1998)

(14,000)

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Loss (4,000)

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(W3) S Ltd shares – 6,500 shares

Gross sale proceeds (March 2010) (6,500 × £5) 32,500

Cost (September 2009) (£36,600 × 6,500/10,000)

(23,790)

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Gain 8,710

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24 Barry

Barry: Capital gains tax liability Gains

GH Ltd shares (W1) 39,000

Non-business asset

17,650

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Net gains for the year 56,650

Chargeable gain on the disposal of shares in the pool (29,000 shares)

Market value (29,000 × £4.50) 130,500

Minus: Cost (from pool)

(55,364)

–––––––––––––––––––––––––––––––––

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Gain 75,136

–––––––––––––––––––––––––––––––––

–

Paper F6 (UK): Taxation FA2009

s261B loss claim (W2) (9,100)

Minus capital losses b/f

(4,610)

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–

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Total net gains 42,940

Minus: Annual exemption

(10,100)

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Taxable gain 32,840

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Capital gains tax at 18% 5,911

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Trading losses

Trading loss in tax year 28,500

s64 current year claim

(19,400)

S261B current year claim

(9,100)

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–

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Trading loss c/f under s83 Nil

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–

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Capital losses

Capital loss brought forward 4,610

Current year set off

(4,610)

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Capital loss carried forward Nil

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–

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Workings

(W1) Sale at undervaluation – GH Ltd shares

Market value (6,000 × £15) 90,000

Minus: Cost

(6,000)

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–

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Gain before specific reliefs 84,000

Gift relief (see below)

(45,000)

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Gain after specific reliefs 39,000

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Gift relief

Actual sale proceeds received 45,000

Original cost

(6,000)

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= Gain 39,000

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–

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Gift relief (£84,000 – £39,000)

45,000

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–

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(W2) s261B trading loss relief – 2009/10

Amount of relief available under s261B – Lower of:

(1) Unrelieved trading loss after s64 claim (£28,500 – £19,400) 9,100

Answers to practice questions

(W2) s261B trading loss relief – 2009/10 £

(2)

Total gains for the year (£39,000 + £17,650) 56,650

Minus: Capital losses in year (Nil)

Capital losses brought forward (4,610)

–––––––––––––––––––––––––––––––––––

Maximum amount 52,040

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25 AB Ltd

AB Ltd

Corporation tax computation – year ended 31 March 2010

Income

Trading income 448,000

Interest income 24,000

UK property income 160,000

Chargeable gain 242,000

–––––––––––––––––––––––––––––––––––

874,000

Gift Aid donations (4,000)

–––––––––––––––––––––––––––––––––––

Proﬁts chargeable to corporation tax (PCTCT) 870,000

–––––––––––––––––––––––––––––––––––

PCTCT

870,000

FII: (dividends received ×

100

= £72,000 + £18,000 × 100/90) 100,000

–––––––––––––––––––––––––––––––––––

Profits 970,000

–––––––––––––––––––––––––––––––––––

Small companies rate

Lower limit

300,000

Upper limit

1,500,000

Rate of corporation tax decision: Tax rate =28% less marginal relief

Corporation tax liability

Corporation tax liability (PCTCT × 28%) (£870,000 × 28%)

243,600

Minus Marginal relief: (1,500,000 – 970,000) × 870,000/970,000 × 7/400 (8,319)

–––––––––––––––––––––––––––––––––––

Corporation tax liability 235,281

–––––––––––––––––––––––––––––––––––

Note

Dividends received from both UK and foreign companies are not taxable income

and so do not appear in the computation of PCTCT. They are, however, classed as

franked investment income and are taken into account in determining the level of

profits.

Paper F6 (UK): Taxation FA2009

26 EF Ltd

EF Ltd: Corporation tax liability computation – 4 months ending 31 December

2009

PCTCT

168,450

FII: (£2,790 × 100/90)

3,100

–––––––––––––––––––––––––––––––––––

Profits

171,550

–––––––––––––––––––––––––––––––––––

Small companies rate

Lower limit 300,000 ×

100,000

Upper limit 1,500,000 ×

500,000

Rate of corporation tax decision: Tax rate = 28% less marginal relief

Corporation tax liability £

Corporation tax liability (£168,450 × 28%)

47,166

Minus Marginal relief: (500,000 – 171,550) × 168,450/171,550 × 7/400

(5,644)

–––––––––––––––––––––––––––––––––––

Corporation tax liability

41,522

–––––––––––––––––––––––––––––––––––

27 GH Ltd

GH Ltd

Corporation tax computation – year ended 31 March 2010

Income

Trading income

226,000

Interest income (W1)

1,400

UK property income (W2)

19,200

Capital gains

Net chargeable gains (see note)

Nil

–––––––––––––––––––––––––––––––––––

246,600

Gift Aid donation

(2,500)

–––––––––––––––––––––––––––––––––––

Proﬁts chargeable to corporation tax (PCTCT)

244,100

–––––––––––––––––––––––––––––––––––

Note

The capital disposal in the period gave rise to a capital loss. Capital losses can not be

set against other profits. Capital losses can only be carried forward and set against

future capital gains.

PCTCT 244,100

FII: (£8,100 × 100/90) 9,000

Profits 253,100

Small companies rate

Lower limit

300,000

Upper limit

1,500,000