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ACF6EFM13(D) Questions

This examination has been prepared for the December 2013 sitting
ACCA Fundamentals Level
Paper F6 (FA 2012)
Taxation (UK)
Final Mock Examination
Question Paper
Time allowed
Reading and Planning
Writing
15 minutes
3 hours
ALL FIVE questions are compulsory and MUST be attempted
During reading and planning time only the question paper may be annotated

Instructions:
Take a few moments to review the notes on the inside of this page titled, Get into good exam habits now! before
attempting this exam.
DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS
2 ACF6EFM13(D) Questions
This examination has been prepared for the December 2013 sitting
Get into good exam habits now!
Take a moment to focus on the right approach for this exam.
Effective time management
Watch the clock, allocate 1.8 minutes to each mark and move on if you get behind.
Take a few moments to think what the requirements are asking for and how you are going to
answer them.
Remember one mark is usually allocated for each point you give in a discursive question.
Effective planning
This paper is in exactly the same format as the real exam. You should read through the paper and
plan the order in which you will tackle the questions. Always start with the one you feel most
confident about.
Read the requirements carefully: focus on mark allocation, question words (see below) and
potential overlap between requirements.
Identify and make sure you pick up the easy marks available in each question.
Effective layout
Present your numerical solutions using the standard layouts you have seen. Show and reference
your workings clearly.
With written elements try and make a number of distinct points using headings and short
paragraphs. You should aim to make a separate point for each mark.
Ensure that you explain the points you are making ie why is the point a strength, criticism or
opportunity?
Give yourself plenty of space to add extra lines as necessary, it will also make it easier for the
examiner to mark.
Common terminology
State Express, fully or clearly, the details of/facts of
Define Give the exact meaning of
Describe Communicate the key features of
Distinguish Highlight the differences between
Explain Make clear or intelligible/state the meaning of
Identify Recognise, establish or select after consideration
Illustrate Use an example to describe or explain something
Calculate/compute To ascertain or reckon mathematically
Demonstrate To prove with certainty or to exhibit by practical means
Prepare To make or get ready for use
Analyse Examine in detail the structure of
Compare and contrast Show the similarities and/or differences
Discuss To examine in detail by argument
Produce To create or bring into existence
Advise To counsel, inform or notify
Evaluate To appraise or assess the value of
Recommend To advise on a course of action

ACF6EFM13(D) Questions 3
This examination has been prepared for the December 2013 sitting
Tax tables
The following tax rates and allowances are to be used in answering the questions.
Income tax
Normal
rates
Dividend
rates
Basic rate 1 34,370 20% 10%
Higher rate 34,371 150,000 40% 32.5%
Additional rate 150,001 and over 50% 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 standard 8,105
Personal allowance aged 65 to 74 10,500
Personal allowance aged 75 and over 10,660
Income limit for age-related allowances 25,400
Income limit for standard personal allowance 100,000
Car benefit percentage
The base level of CO2
emissions is 100 grams per kilometre.
The percentage rates applying to petrol cars with CO
2
emissions up to this level are:
%
75 grams per kilometre or less 5
76 grams to 99 grams per kilometre 10
100 grams per kilometre 11
Car fuel benefit
The base figure for calculating the car fuel benefit is 20,200.
Individual savings accounts (ISAs)
The overall investment limit is 11,280, of which 5,640 can be invested in a cash ISA.
Pension scheme limits
Annual allowance 50,000
The maximum contribution that can qualify for tax relief without any earnings is 3,600.
Authorised mileage allowances: cars

Up to 10,000 miles 45p
Over 10,000 miles 25p
Capital allowances
Plant and machinery %
Main pool 18
Special rate pool 8
Motor cars
CO2
emissions up to 110 grams per kilometre 100
CO
2
emissions between 111 and 160 grams per kilometre 18
CO
2
emissions over 160 grams per kilometre 8
Annual investment allowance
First 25,000 of expenditure 100
4 ACF6EFM13(D) Questions
This examination has been prepared for the December 2013 sitting
Corporation tax
Financial year 2010 2011 2012
Small profits rate 21% 20% 20%
Main rate 28% 26% 24%
Lower limit 300,000 300,000 300,000
Upper limit 1,500,000 1,500,000 1,500,000
Standard fraction: 7/400 3/200 1/100
Marginal relief
Standard fraction (U A) N/A
Value Added Tax
Standard rate 20%
Registration limit 77,000
Deregistration limit 75,000
Inheritance tax: tax rates
1 325,000 0%
Excess death rate 40%
lifetime rate 20%
Inheritance tax: taper relief
Years before death % reduction
Over 3 but less than 4 years 20
Over 4 but less than 5 years 40
Over 5 but less than 6 years 60
Over 6 but less than 7 years 80
Capital gains tax
Rate of tax for individuals
Lower rate 18%
Higher rate 28%
Annual exempt amount 10,600
Entrepreneurs relief
Lifetime limit 10,000,000
Rate of tax 10%
National insurance (not contracted-out rates)
%
Class 1 Employee 1 7,605 per year Nil
7,606 42,475 per year 12.0
42,476 and above per year 2.0
Class 1 Employer 1 7,488 per year Nil
7,489 and above per year 13.8
Class 1A 13.8
Class 2 2.65 per week
Small earnings exception 5,595
Class 4 1 7,605 per year Nil
7,606 42,475 per year 9.0
42,476 and above per year 2.0
Rates of Interest
Official rate of interest 4%
Rate of interest on underpaid tax 3% (assumed)
Rate of interest on overpaid tax 0.5% (assumed)
Supplementary information
Calculations and workings need only be made to the nearest .
All apportionments may be made to the nearest month.
All workings should be shown.
ACF6EFM13(D) Questions 5
This examination has been prepared for the December 2013 sitting
All FIVE questions are compulsory and MUST be attempted
1 Tracey
(a) Until 30 September 2012, Tracey was employed by Finance Plc when she decided to take a
career break. The following information is available for the tax year 2012/13:
Employment with Finance plc
(1) A monthly salary of 12,000. In addition to her salary, on 12 May 2012 Tracey was paid a
profit related bonus of 5,000. The bonus was based on Finance Plcs results for the year
end 31 December 2011.
(2) During the period from 6 April 2012 to 30 September 2012 Traceys two year old son was
provided with a place at Finance Plcs work place nursery. The total cost to the company
of providing this nursery place was 9,555 (147 days at 65 per day).
(3) On 1 May 2012 Finance Plc provided Tracey with an interest free loan of 50,000 which
she used to purchase an antique vase. Tracey repaid 10,000 of the loan on 30 June 2012
and repaid the balance of the loan when she ceased employment on 30 September 2012.
(4) Finance Plc provided Tracey with a home entertainment system for her personal use
costing 6,000 on 6 April 2012. The company gave the home entertainment system to
Tracey for free when she left the company on 30 September 2012, although its market
value at that time was 4,500.
(5) During the period 6 April 2012 to 30 September 2012 Finance Plc paid gym membership
fees of 1,234 for Tracey.
(6) Tracey contributed 5% of her monthly gross salary of 12,000 into Finance Plcs HM
Revenue and Customs registered occupational pension scheme.
(7) Finance plc paid 9,000 PAYE for 2012/13 in relation to Traceys employment.
Property income
(1) Tracy purchased a house, Redacre, on 1 September 2012, which she let it out
(unfurnished) from 1 October 2012 to 5 April 2013 at a monthly rent of 1,500, payable in
advance. During September 2012 Tracey spent 1,275 on advertising for tenants. For the
period 1 September 2012 to 5 April 2013 she paid interest of 3,700, in respect of a loan
that was taken out to purchase Redacre, and buildings insurance of 413.
(2) Tracy also owned another house, Bluewater, which was let out (furnished) until 31 December
2012 at a monthly rent of 800, payable in advance. On 31 December 2012 the tenant left
owing two months rent which Tracey was unable to recover. Bluewater was not re-let before 5
April 2013. During March 2013 Tracey spent 1,500 repairing the roof of Bluewater. Tracy paid
buildings insurance of 400 for the year from 1 January 2012 and 448 for the year from 1
January 2013.
(3) Where possible, Tracey claims the wear and tear allowance.
Other information
(1) During the tax year 2012/13 Tracey received building society interest of 2,280 and
dividends of 1,890. These were the actual cash amounts received.
(2) On 4 August 2012 Tracey received a premium bond prize of 100.
Required
Calculate the income tax payable by Tracey for the tax year 2012/13. (19 marks)
6 ACF6EFM13(D) Questions
This examination has been prepared for the December 2013 sitting
(b) In 2011, Tracey purchased a luxury yacht for her own use. Many of her friends wanted to borrow it
for special occasions and in July 2013, she began charging 1,000 per day for the use of the
yacht. Tracy has been advised that the hiring out of the yacht has resulted in taxable profits, but
she has said that she does not wish to disclose them to HM Revenue and Customs.
Required
(i) Briefly explain the difference between tax evasion and tax avoidance, and how
HM Revenue and Customs would view the situation if Tracey does not disclose her
taxable profits in respect of the yacht. (3 marks)
(ii) Briefly explain from an ethical viewpoint how you, as a trainee Chartered Certified
Accountant, should deal with the suggestion from Tracey that no disclosure is made to HM
Revenue and Customs. (3 marks)
(Total: 25 marks)
2 Brandon Ltd
(a) Brandon Ltd is a United Kingdom resident manufacturing company. The companys statement of profit or
loss for the year ended 31 March 2013 is as follows:

Note


Gross profit

811,400

Operating expenses

Depreciation

95,000

Amortisation of leasehold property

1

8,000

Gifts and donations

2

2,650

Professional fees

3

17,000

Other expenses

4

250,250


(372,900)

Operating profit

438,500

Income from investments




Bank interest

5

14,500

Dividends

6

70,000


84,500

Profit from sale of fixed assets

Disposal of shares

7

78,000


601,000

Interest payable

8

(51,000)

Profit before taxation

550,000

Note 1 Leasehold property
On 1 April 2012 Brandon Ltd acquired a leasehold office building, paying a premium of 80,000 for the
grant of a new ten-year lease. The office building was used for business purposes by Brandon Ltd
throughout the year ended 31 March 2013. No legal costs were incurred by Brandon Ltd in respect of this
lease.
Note 2 Gifts and donations
Gifts and donations are as follows:



Gifts to customers (pens costing 75 each and displaying Brandon Ltds name)

900

Gifts to customers (hampers of food costing 35 each)

1,050

Donation to local charity (Brandon Ltd received free advertising in the charitys

700

magazine)


2,650

ACF6EFM13(D) Questions 7
This examination has been prepared for the December 2013 sitting
Note 3 Professional fees
Professional fees are as follows:



Legal fees in connection with the renewal of a 25-year property lease in respect of a

2,500

warehouse

Legal fees in connection with the issue of loan stock (see note 8)

14,500


17,000

Note 4 Other expenses
The figure of 250,250 for other expenses includes 7,590 for entertaining clients and 5,000 for
entertaining employees.
Note 5 Bank interest received
The bank interest was received on 31 March 2013. There is no accrual at 31 March 2013. The bank
deposits are held for non-trading purposes.
Note 6 Dividends received
During the year ended 31 March 2013 Brandon Ltd received dividends of 25,000 from Dunedin Ltd, a
100% UK subsidiary company, and dividends of 45,000 from Canon Ltd, an unconnected UK company.
Both figures are the actual cash amounts received.
Note 7 Profit on disposal of shares
The profit on disposal of shares is in respect of a 5% shareholding that was sold on 25 September 2012.
The disposal resulted in a chargeable gain of 35,006. This figure is after taking account of indexation.
Note 8 Other information
The interest payable is in respect of the companys 5% loan stock that was issued on 1 April 2012. The
proceeds of the issue were used to finance the companys trading activities. Interest of 25,500 was paid
on 30 September 2012 and again on 31 March 2013.
Note 9 Plant and machinery
On 1 April 2012 the tax written down values of plant and machinery were as follows:

Main pool 20,500
Special rate pool 15,200
The following transactions took place during the year ended 31 March 2013:
Cost/(Proceeds)

10 June 2012 Purchased equipment 1,000
15 June 2012 Purchased motor car (1)
CO2
emissions 150 g/km
10,200
25 September 2012 Purchased motor car (2)
CO
2
emissions 105 g/km
14,500
7 November 2012 Purchased a lorry 21,500
27 February 2013 Sold equipment (4,200)
The equipment sold on 27 February 2013 for 4,200 was originally purchased in 2010 for 9,200.
Required
(i) Calculate Brandon Ltds tax adjusted trading profit for the year ended 31 March 2013, after
deducting capital allowances. Your computation should commence with the profit before taxation
figure of 550,000, and should list all of the items referred to in notes (1) to (9) indicating by the
use of zero (0) any items that do not require adjustment. (15 marks)
(ii) Calculate Brandon Ltds corporation tax liability for the year ended 31 March 2013 and state the
date of payment. (5 marks)
8 ACF6EFM13(D) Questions
This examination has been prepared for the December 2013 sitting
(b) Note that in answering this part of the question you are not expected to take account of any of the
information provided in part (a) above.
The following information is available in respect of Brandon Ltds value added tax (VAT) for the quarter
ended 31 March 2013:
(1) Invoices were issued for sales of 89,200 to VAT registered customers. Of this figure, 70,400
was in respect of exempt sales and the balance in respect of standard rated sales. The standard
rated sales figure is exclusive of VAT.
(2) In addition to the above, on 15 March 2013 Brandon Ltd issued a VAT invoice for 10,000 plus
VAT of 2,000 to a VAT registered customer. This was in respect of a contract for standard rated
financial services that will be completed on 30 April 2013. The customer paid for the contracted
services in two instalments of 6,000 on 31 March 2013 and 30 April 2013 respectively.
(3) Invoices were issued for sales of 150,000 to non-VAT registered customers. Of this figure,
120,000 was in respect of exempt sales and the balance in respect of standard rated sales. The
standard rated sales figure is inclusive of VAT.
(4) The managing director of Brandon Ltd is provided with free fuel for private mileage driven in her
company motor car. During the quarter ended 31 March 2013 this fuel cost Brandon Ltd 295.
The relevant quarterly scale charge is 366. Both these figures are inclusive of VAT.
For the quarters ended 31 December 2011 and 30 September 2012 Brandon Ltd was two months late in
submitting its VAT returns and in paying the related VAT liabilities. All of the companys other VAT returns
have been submitted on time.
Required
(i) Calculate the amount of output VAT payable by Brandon Ltd for the quarter ended 31 March
2013. (4 marks)
(ii) State the circumstances in which Brandon Ltd is and is not required to issue a VAT invoice.
(3 marks)
(iii) Advise Brandon Ltd of the default surcharge implications if it is one month late in submitting its
VAT return for the quarter ended 31 March 2013 and in paying the related VAT liability. (3 marks)
(Total: 30 marks)
3 Pat
Pat had the following events relating to capital gains tax during the tax year 2012/13:
(1) On 10 July 2012 Pat sold five acres of land for 620,000. Pat had held the land as an investment
since he had inherited it upon the death of his mother on 15 December 2000, when the land was
valued at 182,000. Pats mother had originally purchased the land for 77,000.
(2) On 1 December 2012 an office building, owned by Pat as an investment, was damaged by a fire.
The cost of the office building on that date was 210,000. Pat received insurance proceeds of
63,000 on 10 January 2013, and spent a total of 71,000 during March 2013 on restoring the
office building.
Pat made a claim to defer the gain arising from the receipt of the insurance proceeds.
(3) On 19 September 2012 Pat made a gift of 10,000 1 ordinary shares in Randridge plc to his
daughter. On that date the shares were quoted on the Stock Exchange at 4.60 - 4.80, with
recorded bargains of 4.50, 4.65 and 4.70.
ACF6EFM13(D) Questions 9
This examination has been prepared for the December 2013 sitting
Pat has made the following purchases of shares in Randridge plc:
17 March 2001 6,000 shares for 12,600
9 September 2009 8,000 shares for 16,500
1 October 2012 2,000 shares for 8,500
Pats total shareholding was less than 5% of Randridge plc and so gift relief is not available.
(4) On 31 December 2012 Pat sold a house for 360,000. The house had been purchased on 1
January 1993 for 50,000.
Pat occupied the house as his main residence from the date of purchase until 31 December 1997.
The house was then unoccupied between 1 January 1998 and 31 December 2001 due to Pat
being required by his employer to work elsewhere in the United Kingdom.
From 1 January 2002 until 30 June 2003 Pat again occupied the house as his main residence.
The house was then unoccupied until it was sold on 31 December 2012.
Throughout the period 1 January 1993 to 31 December 2012 Pat did not have any other main
residence.
Pats taxable income in 2012/13 was 27,370. Pat has capital losses brought forward from 2011/12 of
25,000.
Required
Calculate the capital gains tax payable by Pat for 2012/13 and state the date of payment. (15 marks)
4 Kyle and Millie
(a) On 1 August 2012, Kyle joined a partnership, having been out of work since January 2012. The existing
partners were Ivor and Julie.
The tax adjusted trading profits of the partnership were 100,800 for the year ending 31 December 2012
and are expected to be 120,000 for the year ending 31 December 2013.
The following profit sharing arrangements applied from 1 August 2012:
Ivor Julie Kyle
Annual salary 24,000 18,000
Profit share 50% 30% 20%
Required
(i) Calculate Kyles share of the adjusted trading profits for the year to 31 December 2012 and the
year to 31 December 2013 and use this to calculate Kyles taxable trading profit for the tax year
2012/13. (8 marks)
(ii) Calculate the class 4 national insurance contributions payable by Kyle for the tax year 2012/13.
(1 mark)
(b) Millie is a sole trader who had been in business for many years and who prepares accounts to 31 October
each year. In the year to 31 October 2013, she had taxable trading profits of 125,000. Millie has no other
sources of income.
Millie is considering making a personal pension contribution of 24,000 (net) on 1 March 2014.
Required
(i) Calculate Millies income tax liability for 2013/14 if she does not make the personal pension
contribution. (2 marks)
10 ACF6EFM13(D) Questions
This examination has been prepared for the December 2013 sitting
(ii) Calculate Millies income tax liability for 2013/14 if she does make the personal pension
contribution. (4 marks)
You should assume that the tax rates and allowances for the tax year 2012/13 will continue to apply in
2013/14.
(Total: 15 marks)
5 Joan
Joan died on 31 December 2012. She had made the following gifts during her lifetime:
1 July 2006: she gave 250 to each of her ten grandchildren
5 July 2008: she gifted 487,000 to a trust for the benefit of her family. Joan paid any tax due.
The nil rate band in 2008/09 was 312,000.
14 February 2010: she gave her great-granddaughter a wedding gift of 25,000
At the date of her death, Joan owned the following assets:
Her residence, valued at 750,000
A vintage car valued at 30,000
Shares held in an ISA valued at 105,000
Bank savings account balance 25,000
Joans funeral expenses were 6,500.
Under the terms of her will Joan left 75,000 to her husband, 125,000 to the trust and the balance of her
estate to be shared equally between her three children.
Required
(a) State the amount of any exempt transfers in relation to the lifetime gifts. (3 Marks)
(b) Calculate any lifetime tax payable on the gift to the trust, clearly showing the value of the transfer
to be carried forward. (4 Marks)
(c) Calculate the death tax due on the lifetime gifts. (4 Marks)
(d) Calculate the death tax due on the death estate. (4 Marks)
(Total: 15 marks)
ACF6EFM13(D) Questions 11
This examination has been prepared for the December 2013 sitting
Student self-assessment
Having completed this paper take a few minutes to consider what you did well and what you found difficult. Use
this as a basis to focus your future study on effectively improving your performance.
Common problems Future emphasis if you answer Yes
Timing and planning
Did you finish too early? Y/N Focus your planning time on generating more ideas.
Use models to help develop width to your thinking.
Did you overrun? Y/N Focus on allocating your time better.
Practise questions under strict timed conditions.
If you get behind leave space and move on.
Did you waffle? Y/N Focus your planning time on developing a logical structure to
your answer.
Layout
Was your answer difficult to follow? Y/N Use headings and subheadings.
Use numbering sequences when identifying points.
Leave space between each point.
Did you fail to explain each point? Y/N Show why the point identified answers the question set.
Were some of your workings unclear? Y/N Give yourself time and space to make the marker's job easy.
Content
Did you struggle with:
Interpreting the questions? Y/N Learn the meaning of question words (inside front cover).
Learn subject jargon (study text glossary).
Read questions carefully noting all the parts.
Practise as many questions as possible.
Understanding the subject? Y/N Review your notes/text.
Work through easier examples first.
Contact a tutor for help.
Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to develop your
memory as well as your understanding of a subject.

12 ACF6EFM13(D) Questions
This examination has been prepared for the December 2013 sitting





































BPP House, Aldine Place, London W12 8AA
Tel: 0845 0751 100 (for orders within the UK)
Tel: +44 (0)20 8740 2211
Fax: +44 (0)20 8740 1184
www.bpp.com/learningmedia
ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting
ACCA Fundamentals Level
Paper F6 (FA 2012)
Taxation (UK)
Final Mock Examination
Guidance, Marking scheme and
Suggested solutions

2 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting
Guidance on improving your exam performance
Which questions to do first?
It is important for you to decide which order to attempt the questions. Each question will carry different marks so
you may prefer to attempt the question with the most marks first or, instead, you may prefer to attempt the topic
you are more confident about first. This means you will build up marks early on giving you a solid base to tackle
the harder questions later.
Whichever you choose, do not spend too long on the questions you are confident about as you need to spend an
appropriate amount of time on them all. You can work out how much time you should spend on each by looking
at the mark allocation and multiplying by 1.8 (as you have 1.8 minute per mark, not including reading time). For
instance, you must not spend more than 27 minutes on a 15-mark question. Remember, you cannot pass the
exam answering two or three questions well and the rest poorly.
An alternative strategy is to answer all questions in strict order. You could use the time saved choosing the order
by starting to plan your answers. You may prefer to use this method if you find yourself spending too long on
your favourite questions as it forces you to spend an appropriate amount of time on each before moving on.
Strategy
Make sure your answers are easy to follow. The focus of the exam is computations, so make sure you use the
correct proformas and show your workings, referenced in clearly.
If there is a written element to a question do write full sentences, even if you are using bullet points.
Time management
Use the reading time to make sure that you get as many of the marks as possible. This is your opportunity to
brainstorm areas that you are less confident with and even to make a brief outline of the proformas you are going
to use in your answers.
Whatever notes/plans you make, use them when writing up your answer when the writing time begins. Tick off
each item as you complete it. If you do not use your planning notes it was a waste of time doing them in the first
place.
Never overrun on any question; once the time is up move on to the next one.
ACF6EFM13(D) Suggested solutions 3
The examination has been prepared for the December 2013 sitting
1 Tracey
Marking scheme
1 (a)
Salary
Occupational pension scheme contributions 1
Bonus
Workplace nursery 1
Beneficial loan Average method 1
Strict method 1
Home entertainment system Use 1
Acquisition 1
Gym membership
Property business profit:
Rent receivable 1
Advertising
Loan interest
Impairment losses
Repairs
Insurance 1
Wear and tear allowance 1
Tax Computation
Building society interest
Dividends
Premium bond prize
Personal allowance
Income tax 1
Tax suffered at source
1

19

1 (b) (i)
Tax evasion 1
Tax avoidance 1
HMRC view 1
3
1 (b) (ii)
Professional judgment and standard of conduct
1

Advise Tracey to disclose

1

Cease to act and inform HMRC


Make money laundering report



3

Total

25


4 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting
Suggested solution
Text references. The income tax computation is dealt with in Chapter 2. Employment income is in
Chapter 3 and benefits in Chapter 4. Property income is covered in Chapter 6. Tax avoidance and tax
evasion, and ethics are dealt with in Chapter 1.
Top tips. Use workings to show the details of your computations rather than putting them in the main
computation of tax.
Easy marks. There were some easy marks here for working out the employment benefits and the
property income.

1 (a)
Tracey - 2012/13 Income Tax Computation
Non savings Savings Dividend

Employment income (w1) 81,367
Property income (w3) 6,740
Building society interest (BSI) 2,280 100/80 2,850
Dividends 1,890 100/90 2,100
Premium Bond Prize Exempt ______ ______ ______
Net income
88,107
2,850 2,100
Less personal allowance
(8,105)
______ _____
Taxable income
80,002

2,850

2,100

Tax
At 20% 34,370 6,874
At 40% 45,632 18,253
At 40% 2,850 1,140
At 32.5% 2,100
682

Tax liability 26,949
Tax paid:
Dividends 2,100 10% 210
PAYE 9,000
BSI 2,850 20%
570


(9,780)

Income tax payable
17,169

Working 1 Employment income

Salary (12,000 6) 72,000
Contributions to Occupational Pension Scheme
72,000 5%
( 3,600)
Bonus (received in year) 5,000
Work place nursery Exempt
Interest free loan (w2) 733
Home entertainment system:
Use of: 6,000 20% 6/12 600
Gift of:
Greater of




Original MV

6,000

Less use benefit

( 600)

5,400

5,400

MV when given

4,500

Gym membership



1,234

Employment income



81,367


ACF6EFM13(D) Suggested solutions 5
The examination has been prepared for the December 2013 sitting
Working 2 Interest benefit
Average basis: (50,000 + (50,000 10,000))/2 4% 5/12
750

Strict basis: 50,000 4% 2/12 333
40,000 4% 3/12
400

733

Tracey should elect for the strict basis to apply.
W3 Property income

Rent receivable Redacre 6 1,500 9,000
Bluewater 9 800 7,200
Expenses
Advertising 1,275
Interest 3,700
Irrecoverable rent 2 800 1,600
Repairs 1,500
Insurance
Redacre 413
Bluewater
400 9/12 300
448 3/12 112
Wear & Tear allowance
(7,200 1,600) 10%
560

(9,460)

Property income
6,740

1 (b) (i)
Tax evasion is illegal and involves reducing tax liabilities by not providing information to which HMRC is
entitled or by providing HMRC with deliberately false information.
Tax avoidance involves the minimisation of tax liabilities by the use of any lawful means, such as investing
in an individual savings account.
If Tracey makes no disclosure of the taxable profits for the letting out of the yacht, this will be viewed as
tax evasion by HMRC.
1 (b) (ii)
This matter is one of professional judgement and a trainee Chartered Certified Accountant would be
expected to act honestly and with integrity.
Tracey should therefore be advised to disclose the taxable profits to HMRC.
If such disclosure is not made, you should consider ceasing to act for Tracey. If you do cease to act for
her, you should inform HMRC of this fact but you do not need to provide any reason.
A report should also be made under the money laundering regulations.

6 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting
2 Brandon Ltd
Marking scheme
2 (a) (i)
Profit before taxation
Depreciation
Amortisation of leasehold property
Gifts of pens to customers
Gifts of hampers to customers
Donation
Legal fees re renewal of lease
Legal fees re issue of loan stock
Entertaining clients
Entertaining employees
Bank interest received
Dividends received
Disposal of shares
Interest payable
Lease premium Assessable amount
1

Deduction
1


P & M Main pool

2


AIA

1


Special rate pool

1


FYA

1


15

2 (a) (ii)
Trading profit
Bank interest
Chargeable gain
Franked investment income
Group dividends
Corporation tax 2
Due date
5
2 (b) (i)
Sales VAT registered customers 1
Additional contract 1
Non-VAT registered customers 1
Fuel scale charge 1
4
2 (b) (ii)
Taxable supply to VAT registered customers 1
Exempt supplies 1
Not VAT registered 1
3
2 (b) (iii)
Previous late submissions
1

Surcharge

1

Extension of surcharge period

1

3

Total

30





ACF6EFM13(D) Suggested solutions 7
The examination has been prepared for the December 2013 sitting
Suggested solution
Text references. Computing taxable total profits is in Chapter 19 and the computation of corporation
tax in Chapter 20. Capital allowances are dealt with in Chapter 8. VAT is the subject of Chapters 26
and 27.
Top tips. You must follow the instructions in the question start with the profit before taxation figure
and indicate with a zero any items which do not require adjustment. You will not gain the available
marks if you simply omit such items.
Easy marks. The point about invoices in part (b)(ii) was straightforward.
2 (a) (i)
Brandon Ltd Trading profit for the year ended 31 March 2013





Profit before taxation
550,000
Add

Depreciation

95,000

Amortisation of leasehold property

8,000

Gifts of pens to customers

900

Gifts of hampers to customers

1,050

Donation

0

Legal fees re renewal of lease

0

Legal fees re issue of loan stock

0

Entertaining clients

7,590

Entertaining employees

0

112,540


Less
Bank interest 14,500
Dividends 70,000
Profit on disposal of shares 78,000
Interest payable 0
Deduction for lease premium (w 1) 6,560
Capital allowances (w 2)
42,986

(212,046)

Trading profit
450,494

Working 1 Deduction for lease premium
The office building has been used for business purposes, and so the proportion of the lease premium
assessed on the landlord can be deducted, spread over the life of the lease.
The amount assessed on the landlord is 65,600 calculated as follows:

Premium received 80,000
Less: 80,000 2% (10 1)
(14,400)

Taxable as property income
65,600

This is deductible over the life of the lease, so the deduction for the year ended 31 March 2013 is 6,560
(65,600/10).






8 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting
Working 2 Capital allowances

Main Special rate


AIA

FYA

pool pool Allowances











TWDV b/f

20,500

15,200

Additions qualifying for

1,000

AIA
21,500


AIA (100%)

(22,500)



22,500

Addition not qualifying
for AIA
10,200
Addition qualifying for
FYA (low emission car)



14,500

FYA 100%

(14,500)

14,500

Disposal


(4,200)




26,500

WDA @ 18%
(4,770)

4,770
WDA @ 8%


(1,216)

1,216

TWDVs c/f


21,730

13,984

Allowances


42,986

Tutorial notes:
(1) Gifts to customers are only an allowable deduction if they cost less than 50 per recipient per
year, are not of food, drink, tobacco, or vouchers for exchangeable goods, and carry a
conspicuous advertisement for the company making the gift.
(2) The costs of renewing a short-lease (less than 50 years) and of obtaining loan finance are
allowable.
(3) The only exception to the non-deductibility of entertainment expenditure is when it is in respect of
employees.
(4) Interest on a loan used for trading purposes is deductible in calculating the trading profit on an
accruals basis.
(5) The cost of the equipment sold will have originally been added to the main pool, so the disposal
proceeds of 4,200 are deducted from that pool.
(a) (ii)
Brandon Ltd Corporation tax computation for the year ended 31 March 2013



Trading profit (part (a))

450,494

Bank interest

14,500

Chargeable gain

35,006

Taxable total profits

500,000

Franked investment income (45,000 100/90)

50,000

Augmented profits

550,000

Corporation tax
500,000 at 24%
120,000

Marginal relief 1/100 (750,000 550,000) 500,000/550,000

(1,818)

Payable 1 January 2014

118,182

Notes
Brandon Ltd has one associated company, so the upper limit is reduced to 750,000 (1,500,000/2).
Group dividends are not included as franked investment income.


ACF6EFM13(D) Suggested solutions 9
The examination has been prepared for the December 2013 sitting
(b) (i)

Sales
VAT registered customers (89,200 70,400 = 18,800 20%) 3,760
Additional contract (tax point = invoice date, 15 March 2013) 2,000
Non-VAT registered customers (150,000 120,000 = 30,000 20/120) 5,000
Fuel scale charge (366 20/120)
61


10,821

(b) (ii)
Brandon Ltd must issue a VAT invoice when it makes a taxable supply to a VAT registered customer,
but there is no requirement to do so if the supply is exempt or if the supply is to a non-VAT registered
customer.
(b) (iii)
Brandon Ltd was late in submitting VAT returns and paying the related VAT liability for the quarters 31
December 2011 and 30 September 2012. The company has not managed to revert to a clean default
surcharge record by submitting four consecutive VAT returns on time.
The late payment of VAT for the quarter ended 31 March 2013 will therefore result in a surcharge of 5%
of the VAT liability for that period, although this will not be collected if it is less than 400.
In addition, the surcharge period will be extended to 31 March 2014.

















10 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting
3 Pat
Marking scheme
2012/13 Computation
Loss b/f
Annual Exempt Amount
Basic rate band remaining
18/28% charge 1
Due date
Workings:
Land
1

Office

2

Shares - deemed proceeds

2

- cost

1

- pool

2

House - calculation of gain

1

- PPR working

2

Total

15

Suggested solution
Text references. Computing chargeable gains is dealt with in Chapter 13, including compensation.
The principal private residence exemption is covered in Chapter 14. Shares and securities are to be
found in Chapter 16.
Top tips. Make sure you deal with each asset separately and then bring the gains together in a
summary computation before deducting losses brought forward and the annual exempt amount.
Easy marks. There were easy marks available for deducting the annual exempt amount and
computing the capital gains tax payable. Did you remember to state the due date? This was another
easy half mark.
2012/13 Capital Gains Summary



Land (w1)

438,000

Office (w2)

nil

Randridge Shares (w3)

20,871

House (w6)

100,750


559,621

Loss b/f

(25,000)

Annual Exempt Amount

(10,600)

Taxable Gains

524,021

Tax

At 18%
(34,370 27,370) = 7,000

1,260

At 28%

(524,021 7,000) = 517,021

144,766

CGT payable 31 January

2014

146,026

Working 1 - Land



Proceeds

620,000

Cost

(182,000)

Gain

438,000


ACF6EFM13(D) Suggested solutions 11
The examination has been prepared for the December 2013 sitting
Working 2 - Office Building
The insurance proceeds of 63,000 received by Pat have been fully applied in restoring the office
building.
There is therefore no disposal on the receipt of the insurance proceeds.
Working 3 - Randridge Plc
Ordinary shares in Randridge plc



Deemed proceeds (10,000 4.60)

46,000

Cost (w4, w5)

(25,129)

Gain

20,871

The shares in Randridge plc are valued at 4.60 ((4.50 + 4.70)/2) as this is lower than 4.65 (4.60 +
1/4(4.80 4.60))
Working 4 - Matching rules
The disposal is first matched against the 2,000 shares purchased on 1 October 2012 (this is within the
following 30 days), and then against the shares in the share pool.
The cost of the shares disposed of is, therefore, 25,129 (8,500 + 16,629 (w5)).
Working 5 Share pool

Number

Cost




Purchase 17 March 2001

6,000

12,600

Purchase 9 September 2009

8,000

16,500


14,000

29,100

Disposal 19 September 2012

(29,100 8,000/14,000)

(8,000)

(16,629)

Carry forward

6,000

12,471

Working 6 - House



Disposal proceeds

360,000

Cost

(50,000)


310,000

Principal private residence exemption (w7)

(209,250)

Chargeable

100,750

Working 7 PPR exemption
The total period of ownership of the house is 20 years, of which 13.5 years qualify for exemption as
follows:
Exempt Chargeable

Years

Years

1 January 1993 to 31 December 1997 (occupied)

5

1 January 1998 to 31 December 2001 (working in UK)

4

1 January 2002 to 30 June 2003 (occupied)

1.5

1 July 2003 to 31 December 2009 (unoccupied,

no reoccupation)

6.5

1 January 2010 to 31 December 2012 (final 36 months)

3




13.5

6.5
The exemption is, therefore, 209,250 (310,000 13.5/20).




12 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting
4 Kyle and Millie
Marking scheme
4 (a) (i)
Period from 1 August 2012 to 31 December 2012
Profit for period 1
Salaries 2
Kyles profit share
Year to 31 December 2013
Profit
Salaries 1
Kyles profit share
Kyles taxable trading profit for 2012/13
1 August 2012 to 31 December 2012 1
1 January 2013 to 5 April 2013
1

8
4 (a) (ii)
Class 4 NICs 1
4 (b) (i)
No pension contribution made
Net income
No personal allowance
Income tax 1
2
4 (b) (ii)
Pension contribution made
Personal allowance available 1
Basic rate band extension 1
Income tax
1


4

Total

15

Suggested solution
Text references. Partnerships are covered in Chapter 11 and the basis of assessment in Chapter 9.
The effect of making personal pension contributions is covered in Chapters 2 and 5.
Top tips. In part (a)(i), since you are only required to compute Kyles share of the adjusted trading
profits, it is not necessary to set out the full partnership computation. In part (b)(ii), it is important that
you set out the computation of adjusted net profits in a separate working and dont try to incorporate it
in the income tax computation.
Easy marks. In part (a) (i) there were some easy marks for the calculation of taxable trading profit for
2012/13 for Kyle if you remembered that the opening year rules applied. In part (b)(i) the income tax
computation was straightforward.






ACF6EFM13(D) Suggested solutions 13
The examination has been prepared for the December 2013 sitting
4 (a) (i)
Kyles share of the adjusted trading profits and taxable trading profit for 2012/13
Period from 1 August 2012 to 31 December 2012

Profit

Kyle






Profit 100,800 5/12
42,000
Salary payable to Julie 24,000 5/12

(10,000)

Salary payable to Kyle 18,000 5/12

(7,500)

7,500

Profit for distribution

24,500

Kyles profit share 24,500 20%

4,900

Kyles share of adjusted trading profits

12,400

Year to 31 December 2013

Profit

Kyle






Profit

120,000

Salary payable to Julie

(24,000)

Salary payable to Kyle

(18,000)

18,000

Profit for distribution

78,000

Kyles profit share 78,000 20%

15,600

Kyles share of adjusted trading profits

33,600

Taxable trading profit for 2012/13
1 August 2012 to 31 December 2012 12,400
1 January 2013 to 5 April 2013 3/12 33,600
8,400

Taxable trading profit for 2012/13
20,800

4 (a) (ii)
Class 4 national insurance contributions for the tax year 2012/13
(20,800 7,605) = 13,195 9%
1,188

4 (b) (i)
Millie income tax liability for 2013/14 if no pension contribution made



Net income

125,000

Less Personal allowance

(nil)

Taxable income

125,000

Income tax
At 20%

34,370

6,874

At 40%

(125,000 34,370) = 90,630

36,252

Income tax liability

43,126

Millie income tax liability for 2013/14 if pension contribution made



Net income

125,000

Less personal allowance (w1)

(8,105)

Taxable income

116,895

Income tax
At 20%

64,370 (w2)

12,874

At 40%

(116,895 64,370) = 52,525

21,010

Income tax liability

33,884




14 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting
Working 1 Personal allowance
Net income
125,000

Less gross pension contribution 24,000 100/80
(30,000)

Adjusted net income
95,000

As adjusted net income is less than 100,000, the personal allowance is available in full.
Working 2 Basic rate limit
The basic rate limit is increased by an amount equal to the gross pension contribution of
24,000 100/80 = 30,000, to
64,370
.
























ACF6EFM13(D) Suggested solutions 15
The examination has been prepared for the December 2013 sitting
5 Joan
Marking scheme
5(a)
Small Gift Exemption
Annual Exemptions 1
Marriage Exemption 1
Annual Exemption



3

5(b)
CLT (net) 1
Nil band 1
Charge at 20/80 1
Gross CLT to carry forward

1


4

5(c)
Gross CLT brought forward
Nil band
40% charge
Taper relief
Life tax paid
Nil band to PET
40% charge
No taper
4
5(d)
Death Estate ( per entry) 3
No nil band
40% charge

4

Total
15









16 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting
Suggested solution
Text references. Inheritance tax is covered in Chapter 18.
Top tips. It is important to realise that amount of the transfer covered by the nil rate band is still
chargeable to IHT, just at 0%. This means that the amount of the transfer to be accumulated is the full
amount of the transfer not just the part which is chargeable at 20% or 40%.
Easy marks. The exemptions in part (a) were easy marks if you did not know these amounts, you
must make sure that you learn them!
5 (a)
Gifts to Grandchildren
Small gift exemption 250 for each gift
Gift to Trust
Annual Exemption 2008/09 3,000
2007/08 b/f 3,000

Wedding Gift to Great-granddaughter
Marriage Exemption (remoter ancestor) 2,500
Annual Exemption 2009/10 3,000
5 (b)
Lifetime tax
Gift to Trust

Gift
487,000

Less: annual exemptions (part (a))

(6,000)

Net CLT

481,000

Tax
At nil 312,000
At 20/80
169,000

42,250

Gross CLT (481,000 + 42,250) =
523,250












ACF6EFM13(D) Suggested solutions 17
The examination has been prepared for the December 2013 sitting
5 (c)
Death Tax on Life Gifts
Gifts to Grandchildren
Exempt (covered by small gift exemption)
Gift to Trust
Gross Chargeable Transfer
523,250

Tax





At nil 325,000
At 40% 198,250 79,300
Less Taper (4 5 years) 40%
(31,720)

Death Tax 47,580
Life Tax Paid
(42,250)

Payable
5,330

Gift to Great-granddaughter





Gift

25,000

Less: marriage exemption (part (a))

(2,500)


annual exemption (part (a))

(3,000)

PET

19,500

Tax

At nil all nil band used by trust

nil

At 40%

19,500

7,800

Less Taper < 3years

nil

Payable

7,800

5 (d)
Death Estate



Residence 750,000
Car 30,000
ISA Shares 105,000
Bank account
25,000

Gross estate 910,000
Funeral expenses
(6,500)

Net estate 903,500
Gift to spouse (exempt)
(75,000)

Chargeable estate
828,500

Tax





At nil (nil band used) nil
At 40% 828,500
331,400



18 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting

ACF6EFM13(D) Suggested solutions 19
The examination has been prepared for the December 2013 sitting
20 ACF6EFM13(D) Suggested solutions
The examination has been prepared for the December 2013 sitting





































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