ACCA

ACCA

Paper F6

Taxation

The Last Four Exam Papers

December 2008 – June 2010

Answers – Finance Act 2009

1
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2
 ACCA F6
December 2008 Exam
answers

3
Answer 1 - Peter Chic
(a) Income tax payable 2009/10

Non- Savings Dividends Total Tax

savings income income credits
PAYE
£ £ £ £ £
Employment (W1)
income (W1) 80,905 15,558 [8]
Property business (W2)
(W2) 3,660 [6]
Interest income
(1,760 × 100/80) 2,200 440 [1]
Dividend income
(720 × 100/90) 800 80 [1]
Premium bond
prize is tax free
income Nil Nil Nil [1]
______ _____ ___ ______
Total income 84,565 2,200 800 87,565
PA (6,475) (6,475) [½]
______ _____ ___ ______
78,090 2,200 800 81,090
Taxable income ______ _____ ___ ______

Income tax £ Extend the basic rate band by

gross gift aid donations
Non-savings income
40,325 × 20% 8,065 37,400 + 2,915 =
40,325
37,765 × 40% 15,106 (2,340 × 100/80) [1]
______
78,090
______
Savings income
2,200 × 40% 880
Dividend income
800 × 32.5% 260
______
81,090 ______ [2]
______
Income tax liability 24,311
Less:
Income tax deducted at source
- Notional tax credits on (80) [½]
dividend
- Tax credits on interest (440) [½]
- PAYE (15,558) [½]
______
Income tax payable 8,233
______ 21 marks

4
(b) National insurance contributions 2009/10
Class 1 Primary NIC for 2009/10 paid by Peter:
£
Salary 45,600
Bonus (1) 4,300
Bonus (2) 3,600
______
53,500 [1]
______
11% × (43,875 - 5,715) = 4,198
1% × (53,500 - 43,875) = 96
______
4,294 [2]
______
Class 1 Secondary NIC for 2009/10 paid by
Haute-Couture Ltd:
12.8% × (53,500 - 5,715) = 6,116 [1]
Class 1A NIC for 2009/10 paid by Haute-Couture Ltd:
12.8% × (80,905 - 53,500) = 3,508 [1]
_______
4 marks
_______
W1 Employment income
2009/10 £
Salary 45,600 [½]
Bonus (1) 4,300 [½]
Bonus (2) 3,600 [½]
Benefits:
- Car benefit
%: 18% + (230 - 135) ÷ 5 = 37% 7,175 [1½]
35% × (22,500 - 2,000)
- Fuel benefit
35% × 16,900 5,915 [1]
- Accommodation benefit
Annual value 9,100 [½]
Additional charge (Note 1)
4.75% × (160,000 + 13,000 - 75,000) 4,655 [1½]
______
13,755 13,755
______
- Use benefit for one mobile phone
20% × 250 (Note 2) 50 [1]
- Health club membership 510 [½]
- Overnight personal expenses 0 [½]
(if paid by an employer is a tax free
benefit up to £10 per night for overnight stays
overseas).
______
80,905 [½]
______ _______

5
 8 marks
_______
Tutorial note:
(1) When computing the accommodation benefit, it will be
necessary to calculate the additional charge as:
(i) the property is owned by the employer.
(ii) the property cost the employer > £75,000.
(2) If the employer provides the one mobile phone for personal
use, this is defined as a tax free benefit. In Peter's case the
provision of the second mobile phone is a taxable benefit
which is called a use benefit.
(W2) Property business profits
2009/10
Property Property
(1) (2)
(furnished) (unfurnished)
£ £
Rent receivable in 2009/10
Property (1)
6.4.09 - 31.8.09 (5m)
5 × 500 2,500 [1]
Property (2)
1.8.09 - 5.4.10 (8m)
8 × 820 6,560 [1]
Allowable expenses
Impaired debts 500 × 2 (1,000) [½]
Repairs to roof (600) [½]
Advertising (875) [½]
Interest payable on loan to buy property (1,800) [½]
Wear and tear of furniture allowance
10% × (2,500 - 1,000) (150) [1]
_____ _____
750 3,885
_____ _____
Total (750 + 3,885) 4,635
Less insurance payable
660 × 3/12 + 1,080 × 9/12 (975) [1]
_____
Property business profits 3,660
_____ _______
6 marks
_______

6
Answer 2 - Jogger Ltd

(a) (i) Tax adjusted trading loss for the year ended 31 March
2010
- +
Loss per question 56,400 [½]
Depreciation 12,340 [½]
Less:
Capital allowances
Plant and machinery (W1) 4,180 [½]
Industrial building (W2) 4,400 [½]
______ _____
64,980 12,340
______ ______
Tax adjusted trading loss
(64,980 - 12,340) £(52,640)
(W1) Capital allowances on plant and machinery
y/e 31.3.2010
General Expensive Expensive Special Capital
pool car car rate allowances
(1) (2) pool
£ £ £ £ £
TWDV b/f 21,600 8,800 16,000 - [½]
Add:
High CO2 car
Cost 14,800 [½]
Disposal
Lorry (8,600) [½]
Expensive car (1) (11,700) [½]
______ ______ ______ ______
13,000 16,000 14,800
Balancing
charge (2,900) (2,900) [½]
WDA
20% × 13,000 (2,600) 2,600 [½]
20% × 16,000
= 3,200 [½]
Restricted to £3,000 (3,000) 3,000 [½]
10% × 14,800 (1,480) 1,480
______ ______ ______ ______
TWDV c/f 10,400 Nil 13,000 13,320
______ ______ ______ ______ ______
Total capital allowances 4,180
______
6 c/f

7
 6 b/f
(W2) Capital allowances for the industrial building
y/e 31.3.2010
WDA = 2% × Qualifying cost
= 2% × 220,000 (320,000 – 100,000) [1]
= £4,400
__
7
__

(ii) Corporation tax liability

Year ended 31 March 2010
£
Property business profits (W3) 126,000 (W3) [2]
Bank interest 8,460 [½]
Loan interest 24,600 [½]
Chargeable gains 98,300 [½]
_______
Total profits 257,360
S393A current (52,640) [1]
_______
204,720
Add:
FII (Note 1) (45,000 × 100/90) 50,000 [1]
_______
"Profits" 254,720
_______
12m
Upper limit ÷ 2 750,000 [1]
Lower limit ÷ 2 150,000
Medium
company
£
Corporation tax liability
FY 09
204,720 × 28% = 57,322 [1]
Less:
7/400 × (750,000 - 254,720) × 204,720
_______
254,720 (6,966) [1]
______
50,356
__
8
__

8
 Note 1
The overseas dividend received is not treated as franked
investment income as Jogger Ltd is associated with Runner
Inc. The rules state that dividends received from associated
companies is called group income and not franked
investment income (FII).
(W3) Property business profits
y/e 31.3.2010 £
Rent receivable 44,000 [½]
Add: Premium received during the CAP 100,000 [½]
Less: Capital element
2% × (10 - 1) × 100,000 (18,000) [1]
_______
Property business profits 126,000
_______
__
2
__
(iii) (1) Jogger Ltd's self-assessment tax return for the year
ended 31 March 2010 must be submitted by 31 March
2011. [1]
(2) If the company submits its self-assessment tax return
eight months late, then there will be an automatic fixed
penalty of £200, since the return is more than three
months late. [1]
(3) There will also be an additional corporation tax related
penalty of £5,036 (50,356 × 10%) being 10% of the
tax unpaid, since the self-assessment tax return is
more than six months late. [2]
__
4
__
(b) (i) (1) The late submission of the VAT return for the quarter
ended 30 September 2008 will have resulted in HM
Revenue and Customs (HMRC) issuing a surcharge
liability notice specifying a surcharge period running to
30 September 2009. [1]
(2) The late payment of VAT for the quarter ended 31
March 2009 will have resulted in a surcharge of £778
(38,900 × 2%). [1]
(3) The surcharge period will also have been extended to
31 March 2010. [1]
(4) Although Jogger Ltd then submitted three consecutive
VAT returns during this surcharge period on time, this
was insufficient to revert to a clean default surcharge
record. [1]
(5) The late payment of VAT for the quarter ended 31
March 2010 will therefore have resulted in a surcharge
of £4,455 (89,100 × 5%). [1]
(6) The surcharge period will also have been extended to
31 March 2011. [1]
__
6

9
 __
(ii) (1) The reduced administration from only having to submit
one VAT return each year should mean that default
surcharges are avoided in respect of the late
submission of VAT returns. [2]
(2) In addition, making payments on account based on the
previous year's VAT liability will improve both budgeting
and possibly cash flow where a business is expanding. [1]
(3) Jogger Ltd can apply to use the annual accounting
scheme if its expected taxable turnover for the next 12
months does not exceed £1,350,000 exclusive of VAT. [1]
(4) In addition the company must be up to date with its
VAT returns. [1]
__
5

10
Answer 3 - Hawk Ltd
(a) Corporation tax liability for the year ended 31 March 2010
£
Profits from trading 125,000 [½]
Chargeable gains (W1) 94,114 (W1) [½]
_______
Total profits 219,114
Gift aid donations (Nil)
_______
PCTCT 219,114
_______
Small company [1]
Corporation tax
219,114 × 21% = £46,014 [1]

(W1) Chargeable gains

Chargeable
gains
£ £ £
(1) Sale of freehold offices
Sale proceeds 260,000 [½]
Less: Allowable selling costs (3,840) [½]
Less: Cost (July 1990) 31,000
Acquisition costs 3,200
______
84,200 (84,200) [1]
______
Less: Enhancement (May 2002) (43,000)
_______
Unindexed gain 128,960
Less: IA (W2)
(1) 0.668 × 84,200 (cost) (56,246) [½]
(2) 0.200 × 43,000 (ext cost) (8,600)
_______
Indexed gain 64,114 64,114 [½]
_______
(W2) The indexation factor from July 1990 to April
2009 is 0.668 (211.5 - 126.8/126.8).
The indexation factor from May 2002 to
April 2009 9s 0.200 (211.5 - 176.2/176.2)
______
64,114
6 c/f

11
 6 b/f
Chargeable gains b/f 64,114
(2) Sale of 5,000 shares in Albatross plc
£
Sale proceeds 42,500 [½]
Less: Cost (W3) (17,500) [½]
______
25,000
Less: Indexation allowance (Nil)
______
Indexed gain 25,000 25,000 [½]
______
(W3) No Cost Indexed
shares cost
£ £
1.8.09 Purchase 6,000 18,600 18,600
No indexation allowance - [2]
_____ ______ ______
6,000 18,600 18,600
17.8.09 purchase 2,000 9,400 9,400
_____ ______ ______
8,000 28,000 28,000
29.8.09 sale (5,000) (17,500) (17,500)
28,000
× 5,000
8,000
= 17,500
_____ ______ ______
c/f 3,000 10,500 10,500
_____ _____ ______
(3) Sale of 10,000 preference shares in
Cuckoo plc £
Sale proceeds 32,000 [½]
Less: Cost (W4) (15,000) [½]
______
17,000
Less: Indexation allowance (Nil)
______
Indexed gain 17,000 17,000 [½]
______
(W4) Exchanged assets MV Cost
15,000 ordinary shares in £ £
Cuckoo plc
(15,000 × £4.50) 67,500 45,000
(W5)
10,000 preference shares
(10,000 × 2.25) 22,500 15,000 [2]
______ ______
90,000 60,000
______ ______
Chargeable gains c/f 106,114
13 c/f

12
 13 b/f
Chargeable gains b/f £106,114
(W5) Cost of 15,000 ordinary shares
67,500
× 60,000
90,000
= £45,000
(4) Sale of two acres of land
£
Sale proceeds 120,000 [½]
Less: Cost
203,500 × A
120,000 (132,000) [1]
120,000 + 65,000
A+B
_______
Capital loss (12,000) Nil [1]
_______
Tutorial note:
This is a part disposal of land.
The cost of the part sold (2 acres) must be computed
using the part disposal fraction.
A where A is the gross
A+B
_______
Total chargeable gains 106,114
Less: Capital loss (12,000)
_______
94,114
_______
Sale proceeds for the 2 acres sold and B is the
market value of the remaining land (1 acre)
which is given in the question. [½]
________
16 marks
________
(b) (i) The only disposal that qualifies for rollover relief is the sale of
the freehold office building.
The office building was sold for £260,000, and this is
therefore the amount that Hawk Ltd will have to reinvest in
order to claim the maximum possible amount of rollover
relief. [2]
(ii) The reinvestment will have to take place between 1 May
2008 and 30 April 2012, being one year before and three
years after the date of disposal. [1]
(iii) Corporation tax of £13,464 (64,114 × 21%) will be saved if
the maximum possible amount of rollover relief is claimed. [1]

13
Answer 4 – Ae, Bee, Cai, Dee and Eue
(a) Ae, Bee and Cae taxable trading profits of 2008/09,
2009/10 and 2010/11
STEP 1
Accounting date: 30 June
Ae Bee Cae
Start date 1.7.07 1.7.07 1.7.09
First tax year 2007/08 2007/08 2009/10
Accounting period 1 begins 1.7.07 1.7.07 1.7.09 [½]
STEP 2
The accounting profit - each of Ae and Bee
£
Year ended 30 June 2008 108,000
Year ended 30 June 2009 132,000
Year ended 30 June 2010 154,000
Allocate the profits between the partners.
Ae Bee Cae
£ £ £
y/e 30.6.08 54,000 54,000 -
y/e 30.6.09 66,000 66,000 - [1]
y/e 30.6.10 51,333 51,333 51,334
STEP 3
Convert the tax adjusted accounting profit into taxable
profits by applying the opening year rules
Each of Ae and Bee
Tax Tax Period of profits Taxable
year year assessable trading
profits
£
1 07/08 1.7.07 - 5.4.08 40,500 [1]
(9/12 × 54,000)
2 08/09 Q1 Does an accounting date
(30.6.08) fall in 08/09?
Yes
Q2 Which accounting date falls
in 08/09?
30.6.08
Underline the accounting period
ending on 30.6.08
What length if this accounting period?
≥ 12 months
Use normal basis = 12 months to
the accounting date ending in this
fiscal year 54,000 [1]
(Overlap profits = £40,500)
3½ c/f

14
 3½ b/f
Tax Tax Period of profits Taxable
year year assessable trading
profits
£
3 09/10 Normal basis
(30.6.09) y/e 30.6.09 66,000 [½]
Cae
Tax Tax Period of profits Taxable
year year assessable trading
profits
£
1 09/10 1.7.09 - 5.4.10 38,500 [1]
(9/12 × 51,334)
___
5
___
(b) (i) Dee
Taxable trading profits 2007/08, 2008/09 and 2009/10
STEP 1
Accounting date 1 5 April
New accounting date 31 July
Tax year of change 2008/09
STEP 2
Adjust the accounting profits.
STEP 3
Convert the accounting profits into taxable profits by
applying the change of accounting date rules.
Tax Tax Period of profits Taxable
year year assessable trading
profits
£
1 07/08 y/e 5 April 2008 40,750 [1]
2 08/09 12 months to the new
(tax year accounting date
of change) 1.8.07 - 31.7.08
1 Aug 2007 to 5 Apr 2008
£
8/12 × 40,750 27,167
6 Apr 08 to 31 Jul 08 15,320
______
42,487 42,487 [2]
______
3 09/10 Normal basis
(31.7.09) y/e 31.7.09 62,600 [1]
___
4

15
(ii) In 2008/09 there are overlap profits of £27,167 in respect of the
eight month period 1 August 2007 to 5 April 2008. [1]
(c) Eue
STEP 1
Accounting date 30 June
Stop date 30 September 2009
Final tax year he has
taxable trading profit 2009/10
STEP 2
Compute the tax adjusted trading profits after capital allowances.
Profits Capital Adjusted
allowances accounting
profit
Year ended 30 June 2008 53,200
1.7.08 - 30.9.09 69,000 (6,800) 63,200 [1]

Capital allowances
1.7.08 - 30.9.09 General Capital
pool allowances
£ £
TWDV b/f 9,200
Additions (no AIA in final
accounting period) 3,800 [1½]
Disposal (6,200)
_____
Balancing charge
Balancing allowance 6,800 6,800
_____
WDA - N/A in final accounting
period
_____
Balancing allowance 6,800
_____
STEP 3
Convert the tax adjusted accounting profits into taxable trading
profits by applying the closing year rules.
Tax Period of profits assessable Taxable
year assessable
£
08/09 Year ended 30 June 2008 53,200 [½]
09/10 £
(final 1 July 2008 to 30 Sept 2009 63,200
tax year) Less: Overlap profits (17,200)
______
45,000 45,000 [1]
______
___
4
___

16
Answer 5 - Ann Peach, Basil Plum and Chloe Pear

Ann Peach - Income tax computation 2009/10

£
Trading profits 48,000 [½]
Personal allowance (6,475) [½]
______
Taxable income 41,525
______
41,525 × 20% 8,305 [½]
(1) Only £48,000 of Ann's pension contributions of £52,000 will have
qualified for tax relief, since relief is only available up to the
amount of her relevant earnings. [1]
(2) The pension contributions result in Ann's basic rate band being
extended to £85,400 (37,400 + 48,000). [½]
___
3
___
Basil Plum - Income tax computation 2009/10
Employment income 330,000 [½]
Personal allowance (6,475) [½]
_______
Taxable income 323,525
_______
Income tax
307,400 × 20% 61,480 [½]
16,125 × 40% 6,450 [½]
_______ _______
323,525 67,930
_______
Excess contribution charge
25,000 (270,000 - 245,000) × 40% 10,000 [1]
_______
Income tax liability 77,930
_______
(1) All of Basil's pension contribution of £270,000 will have qualified
for tax relief, although the excess contribution charge effectively
restricts relief to £245,000. [1]
(2) The pension contributions result in Basil's basic rate band being
extended to £307,400 (37,400 + 270,000). [1]
___
5
___
Chloe Pear - Income tax computation 2009/10
Property business profits 24,750 [½]
Personal allowance (6,475) [½]
_______
Taxable income 18,275
_______
Income tax
18,275 × 20% 3,655 [½]
Chloe has no relevant earnings in 2009/10, so only £3,600 of her
pension contribution of £6,750 will have qualified for tax relief. [½]
___
2

17
18
 ACCA F6
June 2009 Exam
answers

19
Question 1 – Domingo, Erigo, Fargo and Gomez

1 (a) (i) Domingo Gomez – Income tax computation 2009/10

£
Pensions (4,500 + 2,300) 6,800
Building society interest (14,400 x 100/80) 18,000
Interest from savings certificate (exempt) -
______
24,800
Personal allowance (see note (2)) (8,540)
______
Taxable income 16,260
========

Dividends -
Savings (see note (3)) 16,260
Other (balancing figure) -
______
16,260
========
Income tax
£
2,440 at 10% 244
13,820 at 20% 2,764
______
16,260
======= ______
Income tax liability 3,008
=======

Notes

(1) As the charitable donations were not made under the gift aid scheme, no
tax relief is available for them.

(2) Domingo is age 67 and is therefore entitled to a higher personal allowance

of £9,490. However, as his net income exceeds £22,900, his personal
allowance is reduced as follows:
£
Personal allowance (age 67) 9,490
Less abatement/restriction ½(24,800 – 22,900) (950)
_____
8,540
=======

20
(1) The personal allowance first reduces the non-savings income to nil and then
the savings income to £16,260 (18,000 – (8,540 – 6,800)). The first £2,440
of savings income is taxed at the starting rate of 10%.

(ii) Erigo Gomez – Income tax computation 2009/10

£
Employment income
Salary 36,000
Occupational pension contributions (36,000 x 6%) (2,160)
Charitable payroll deductions (12 x 100) (1,200)
______
32,640
Relocation costs (11,400 – 8,000) 3,400
______
36,040
Mileage allowance shortfall (2,400)
______
33,640
Personal allowance (6,475)
______
Taxable income 27,165
=======
Income tax
£27,165 at 20% 5,433
_____
Income tax liability 5,433
======
(1) Of the relocation costs of £11,400, the first £8,000 are exempt and the
excess is taxable.

(2) The mileage allowance received of 20 pence per mile is less than HMRC’s
authorised rates and therefore Erigo can make the following expense claim
for the shortfall:
£ £
Mileage allowance received
18,000 miles at 20p 3,600

HMRC authorised rates

10,000 miles at 40p 4,000
8,000 miles at 25p 2,000
_____
(6,000)
_____
The shortfall is tax deductible (2,400)
======

21
(iii) Fargo Gomez – Income tax computation 2009/10
£
Trading income 64,800
Less pre trading expenditure (see note (1)) (2,600)
Less capital allowances (see note (2)) (1,100)
______
61,100
Personal allowance (6,475)
______
Taxable income 54,625
=======
Income tax
£
45,600 at 20% (see note (3)) 9,120
9,025 at 40% 3,610
______
54,625
======= _____
Income tax liability 12,730
======

Notes

(1) As the advertising expenditure incurred during May 2009 was incurred
within the seven years prior to the commencement of trade and is the type
of expense that would be allowable had trade already commenced, it
qualifies as allowable ‘pre-trading expenditure’ and as such is effectively
treated as incurred on 6 July 2009. As no adjustment has yet been made, it
is therefore deductible against trading profits of the nine-month period
ended 5 April 2010.

(2) The writing down allowance on Fargo’s car is 20 per cent per annum as the
CO2 emissions are greater than 110 g/km travelled but no more than 160
g/km. As Fargo’s period of account is nine months’ long this writing down
allowance is prorated as follows:

11,000 x 20% x 9/12 = 1,650

Fargo can only claim the business use proportion of this allowance. His total
mileage was 24,000 of which 8,000 were private, therefore his business
mileage is 16,000 (24,000 – 8,000) and the allowance claimed is as follows:

1,650 x 16,000/24,000 = 1,100.

(3) As Fargo has paid personal pension contributions of £5,200 (gross) and gift
aid donations of £2,400 (net) his basic rate tax band is extended by £8,200
(5,200 + (2,400 x 100/80)) from £37,400 to £45,600.

22
(b)

(1) The latest date that Domingo and Erigo can file paper self-assessment tax
returns for 2009/10 is 31 October 2010, unless the return is issued late, in
which case it is the later of:

- 31 October 2010
- two months after the issue of the return.

(2) If Domingo completes a paper tax return by 31 October 2010 then HM

Revenue and Customs will prepare a self-assessment tax computation on
his behalf.

(3) The latest date that Fargo can file a self-assessment tax return for 2009/10
online is 31 January 2011. A calculation of the tax is automatically done.

(c)

(1) Records must generally be retained until one year after the filing date. This
applies to employees and persons not in business. As Domingo and Erigo
were not in business during 2009/10, and the filing date for 2009/10 is 31
January 2011, their records must be retained until 31 January 2012.

(2) For persons who are in business, records (both business and non-business)
must be retained until five years after the filing date, which for 2009/10 is
31 January 2006. As Fargo was in business during 2009/10, this date
applies to him.

(3) Failure to retain records for the required period could result in a penalty of
up to £3,000 per tax year affected. However, the maximum penalty will
only be charged in serious cases.

23
Question 2 – Gastron Ltd

(a) Gastron Ltd – Trading profit for the year ended 31 March 2010

£ £
Profit before taxation 640,000
Add back
Depreciation 85,660
Amortisation of leasehold property 6,000
Gifts of pens to customers 1,200
Gifts of hampers to customers 1,100
Donation to local charity 0
Legal fees re renewal of lease 0
Legal fees re issue of debentures 0
Entertaining suppliers 1,300
Entertaining employees 0
Interest payable 0
______
95,260
Deduct
Deduction for lease premium (W1) 4,920
Income from property 20,600
Bank interest 12,400
Dividends 54,000
Profit on disposal of shares 80,700
______
(172,620)
Capital allowances (W2) (62,640)
_______
Trading profit 500,000
==========

Tutorial notes
(1) Gifts to customers are only an allowable deduction if they cost less than £50
per recipient per year, carry a conspicuous advertisement for the company
making the gift and are not of food, drink, tobacco, or vouchers for
exchangeable goods.
(2) The costs of renewing a short-lease (less than 50 years) and of obtaining
loan finance for a trading purpose are allowable.
(3) Entertainment expenditure is allowable only 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.

24
(b) Gastron Ltd – Corporation tax computation for the year ended 31
March 2010

£
Trading profit (from (a)) 500,000
Property business profit (W3) 12,800
Bank interest 12,400
Chargeable gain 74,800
_______
PCTCT 600,000
=========

Corporation tax £600,000 at 28% 168,000

Marginal relief 7/400 (750,000 – 640,000) x 600,000/640,000 (1,805)
_______
Corporation tax liability 166,195
=========

(c) (1) Small and marginal companies must pay their corporation tax liability
within 9 months and one day of the end of the chargeable accounting
period. As Gastron Ltd is a marginal company its corporation tax
liability for the year ended 31 March 2010 must be paid by 1 January
2011.

(1) If the company pays its corporation tax liability after the due date,
then HM Revenue and Customs will charge interest which runs from
the due date of payment to the actual date of payment. Therefore, if
Gastron Ltd does not pay its corporation tax until 31 August 2011,
interest will be charged for the period 1 January 2011 to 31 August
2011 and will be £2,216 (166,195 x 2% x 8/12).

(d) (1) Companies form a capital gains group if at each link in the group
structure there is a minimum 75% shareholding.

(2) In addition the parent company (or ‘principal member’) must have an
effective interest of more than 50% in each group company.

(e) (1) Gastron Ltd and Culinary Ltd must make the election within two years
of the end of the accounting period in which the disposal outside of the
group occurred; therefore by 31 March 2012.

(2) The election will be beneficial as it would result in Culinary Ltd’s

otherwise unused capital loss of £66,000 being set against Gastron
Ltd’s chargeable gain of £74,800, leaving only £8,800 of the gain
chargeable.

(3) As the election can be made in respect of part of an asset, the

remaining chargeable gain of £8,800 could arise in either Gastron Ltd

25
 or Culinary Ltd. It would be beneficial for it to arise in Culinary Ltd as
it will only be taxed at the rate of 21%, instead of at the marginal rate
(29·75%) in Gastron Ltd.

Working 1 – Deduction for lease premium

(1) The office building has been used for business purposes, and so the
proportion of the lease premium assessed on the landlord can be deducted by
the tenant (Gastron Ltd), but must be spread over the life of the lease.

(2) The amount assessed on the landlord is £49,600 calculated as:

Premium received 60,000 x (51 – 10)/50 = £49,200

(3) The deduction for Gastron Ltd for the year ended 31 March 2010 is
therefore £4,920 (£49,200/10).

Working 2 – Plant and machinery

FYA AIA Pool Car Claimed

100%
TWDV bfwd 16,700 18,400
Additions
19 May – Equipment 21,600
12 July – Car 9,800
11 August – Car 16,200
5 October – Lorry 17,200
Disposals
5 March – Equipment (3,300)
––––––– ––––––– ––––––– –––––––
16,200 38,800 23,200 18,400
FYA/AIA (16,200) (38,800) 55,000
WDA 20% (4,640) 4,640
Restricted (3,000) 3,000
––––––– ––––––– ––––––– –––––––
TWDV c/fwd Nil Nil 18,560 15,400
======== ======== ======== ======== –––––––
Total allowances 62,640
========

26
Working 3 – Property business profit
£ £
Rent receivable – First tenant (1,800 x 9) 16,200
Rent receivable – Second tenant (1,950 x 2) 3,900
–––––––
20,100
Impairment loss (1,800 x 2) 3,600
Decorating 3,700
–––––––
(7,300)
–––––––
12,800
========

Working 4 – ‘Profits’
£
PCTCT 600,000
Franked investment income (36,000 x 100/90) 40,000
_______
‘Profits’ 640,000
=========
Lower limit = £300,000 ÷ 2 150,000
Upper limit = £1,500,000 ÷ 2 750,000

Therefore, marginal company

Notes

(1) Group dividends are not included as franked investment income.

(2) Gastron Ltd has one associated company, so the upper and lower limits are
divided by two.

27
Question 3 - Nim and Mae Lom

Nim Lom - CGT liability 2009/10

Chargeable
gains
£
(1) Gift of 10,000 shares in Kapook plc £
Sale proceeds (W1) (10,000 × 3.70) 37,000 [½]
Cost (W2) (23,400)
______
Capital gain 13,600
CGT reliefs (Nil)
______
Chargeable gain 13,600 13,600
______

(W1) MV of quoted shares in Kapook plc

Average method = £3.70

3.60 + 3.80 [1]
__________
2

1/4 up method = £3.75

3.70 + 1/4 × (3.90 - 3.70)

The average method gives the lower value,

therefore the Kapook plc shares are valued at £3.70.

(W2) Cost of the 10,000 shares in Kapook

6.4.82 20.5.09 19.6.09

No of Cost No of Cost
Shares £ shares £
19.2.01 8,000 16,200 24.5.09 2,000 5,800
[1]
6.6.06 6,000 14,600
______ ______
14,000 30,800
(30,800 × 8,000)
14,000 (8,000) (17,600)
______ ______
[1]
c/f 6,000 13,200
______ ______
£
Total cost of 10,000 shares = 23,400
(5,800 + 17,600) ______
Chargeable gains c/f 13,600

28
 3½ c/f
3½ b/f

Chargeable
gains
£

Chargeable gains b/f 13,600

(2) Disposal of 5,000 shares in Jooba Ltd to Mae

This is a disposal of a chargeable asset to a Nil [1]

connected person (Nim's wife) and takes place at no
gain and no loss.

(3) Sale of antique table

Chattel rule states:

Cost < £6,000 [1]

Sale proceeds > £6,000

Method (1) - normal method £

Sale proceeds 8,700 [½]

Cost (5,200) [½]
_____
Capital gain 3,500
_____

Method (2) - formula method

5/3 × (8,700 - 6,000) = 4,500 [1]

Take the lower capital gain using Method (1) 3,500 [½]

(4) Sale of UK government securities

This is the disposal of an exempt asset for CGT and Nil [1]
takes place at no gain/no loss
______

Total chargeable gains 17,100

Less: Capital loss brought forward (restrict to preserve

the annual exemption) (7,000) [1]
______
10,100
Less: Annual exemption (10,100) [½]
______
Taxable gain Nil
______

Capital gains tax Nil [½]

______

11c/f

29
 11 b/f

Capital gains tax liability for Mae Lom in 2009/10 Chargeable

gains
£

(1) Sale of 2,000 shares in Jooba Ltd

£
Sale proceeds 30,400 [½]
Cost (16,000/5,000 × 2,000) (6,400) [1]
______
Capital gain 24,000
Less: Entrepreneurs’ relief (Nil)
______
Chargeable gain 24,000 24,000
______

(2) Sale of house

Sale proceeds 186,000 [½]

Cost (122,000) [½]
_______
Capital gain 64,000
PPR relief (64,000 × 7/8) (56,000) [1]
_______
Chargeable gain 8,000 8,000
_______

(3) (a) Sale of all sole trader chargeable assets

used in the business on 30.11.09

Goodwill Office Total

Building
£ £ £

Capital gains 80,000 136,000 216,000 [1]

Less: Entrepreneurs' relief
4/9 × 100,000 (Note 1) (44,444) [2]
_______
Chargeable gain 171,556 171,556
_______

Note 1
Mae has claimed entrepreneurs' relief in 2008/09.
The capital gains eligible for the relief were
£900,000. This means that £100,000 of future
capital gains are eligible for entrepreneurs' relief. ______

Chargeable gains c/f 203,556

17½ c/f

30
 Chargeable 17½
gains b/f
£

Chargeable gains b/f 203,556

(b) Chargeable asset not used for business

Investment property

Capital gain 34,000 [½]

(4) Sale of copyright

Sale proceeds 9,600 [½]

Less: Unwasted cost (10,000 × 15/20) (7,500) [1]
______
Chargeable gain 2,100 2,100 [½]
______ _______
Total chargeable gains 239,656
Less: Capital loss brought forward (8,500) [½]
_______
231,156
Less: Annual exemption (10,100) [½]
_______
Taxable gain 221,056
_______
Capital gains tax (221,056 × 18%) £39,790 [½]
___
20
___

Capital losses carried forward

Brought Used in Carried

forward 2009/10 forward
to 2010/11
£ £ £

Nim Lom 16,700 (7,000) 9,700

Mae Lom 8,500 (8,500) Nil

31
Question 4 – Anne Attire

(a) VAT return – Quarter ended 30 November 2009

£ £
Output VAT
Cash sales (£28,000 x 15%) 4,200
Credit sales (£12,000 x 95% x 15%) (see note (1)) 1,710

Input VAT
Purchases and expenses (£11,200 x 15%) 1,680
Impairment loss (£800 x 95% x 15%) (see note (2)) 114
_____
(1,794)
______
VAT payable 4,116
=======
The VAT return for the quarter ended 30 November 2009 should have been
submitted within one month after the end of the VAT period, therefore by 31
December 2009.

Notes
(1) The calculation of output VAT on the credit sales is always on the discounted
amount, regardless of whether the customer actually takes up the discount.
(2) Relief for an impairment loss is not given until six months from the time
that payment is due. Therefore relief can only be claimed in respect of the
invoice due for payment on 10 April 2009. Relief is based on the amount of
output VAT that would originally have been paid taking into account the
discount for prompt payment.

(b)

(1) Anne can use the cash accounting scheme if she is up-to-date with her VAT
returns and VAT payments and her taxable turnover for the next 12 months
is not expected to exceed £1,350,000.
(2) The cash accounting scheme results in the tax point becoming the date that
cash actually changes hands. This means that for sales, the output VAT is
accounted for according to the date that payment is received from
customers and for purchases, the input VAT is accounted for according to
the date that payment is made to suppliers.
(4) This means that for Anne, output VAT on most credit sales will be accounted
for up to one month later than at present but the recovery of input VAT will
be delayed by two months.
(5) The scheme provides automatic bad debt relief should a credit sale
customer default on the payment of a debt.

32
(c) (i) Sale of assets on a piecemeal basis
(1) Upon the cessation of trading Anne will cease to make taxable supplies, so
her VAT registration will be cancelled on the date of cessation or an agreed
later date.
(2) Output VAT will be due in respect of the value of the fixed assets at the date
of deregistration on which VAT has been claimed (although output VAT is
not due if it totals less than £1,000).
(ii) Sale of business as a going concern
(1) Since the purchaser is already registered for VAT, Anne’s VAT registration
will be cancelled as above.
(2) A sale of a business as a going concern is to a VAT registered purchaser
who will carry on the same kind of business with no noticeable break in
trading pattern is outside the scope of VAT, and therefore output VAT will
not be due.

33
Question 5 - Andrew Zoom

(a) (1) Andrew is under the control of Slick-Productions Ltd.

(2) Andrew is not taking any financial risk.
(3) Andrew works a set number of hours, is paid by the hour and
is paid for overtime.
(4) Andrew cannot profit from sound management.
(5) Andrew is required to do the work personally.
(6) There is an obligation to accept work that is offered. [½ mark
(7) Andrew does not provide his own equipment. each point]
___________
4 marks max
___________
(b) (i) Treated as an employee
(1) Andrew's income tax liability for 2009/10 will be:
£
Employment income 50,000 [½]
Personal allowance (6,475) [½]
______
Taxable income 43,525
______
Income tax
£
37,400 at 20% 7,480 [½]
6,125 at 40% 2,450 [½]
______
43,525
______ ______
Income tax liability 9,930
(2) Class/Primary NIC 2009/10
£
11% × (43,875 - 5,715) 4,198 [½]
1% × (50,000 - 43,875) 61 [½]
_____
4,259 4,259
_____ ______
Total tax payable by Andrew if he is treated as
an employee of Slick Productions Ltd 14,189
______ __
3
__

34
(ii) Treated as self-employed
(1) Andrew's trading profits for 2009/10 will be £50,000.
£ £
Income tax liability 9,930 [½]
(2) Class 2 NIC for 2009/10
£2.40 × 52 125 [1]
(3) Class 4 NIC for 2009/10
8% × (43,875 - 5,715) = 3,053 [1]
1% × (50,000 - 43,875) = 61 [½]
_____
3,114 3,114
_____

______
Total tax payable by Andrew if he is
treated as being self -employed with
regard to his income from Slick 13,169
Productions Ltd
______ __
3
__

35
36
 ACCA F6
December 2009 Exam
answers

37
Question 1 – Na Style

(a)

Started trading 1 January 2007 (2006/07)

Length of first accounting period
1 January 2007 – 30 June 2007 = 6 months
£ £
2006/07 1 January 2007 to 5 April 2007
(= 3 months)
25,200 x 3/6 12,600
=======
2007/08 First 12 months of trade
1 January 2007 to 31 December 2007
1 January 2007 to 30 June 2007 25,200
1 July 2007 to 31 December 2007
21,600 x 6/12 10,800
______
36,000
=======

2008/09 Year ended 30 June 2008 21,600

=======
Notes

(1) The assessment for 2007/08 (the second tax year) is the first 12 months of
trading as the accounting date falling in that year is less than 12 months
from the commencement of trading.

(2) There are overlap profits of £12,600 in respect of the three- month period 1
January 2007 to 5 April 2007 which were assessed in both 2006/07 and
2007/08.

(3) There are overlap profits of £10,800 in respect of the six-month period 1
July 2007 to 31 December 2007 which were assessed in both 2007/08 and
2008/09.

38
(b) Na Style – Trading profit for the year ended 30 June 2009

£ £
Net profit 22,000
Add back
Depreciation 1,300
Motor expenses (2,200 x 7,000/8,000) 1,925
Accountancy 0
Legal fees in connection with grant of a new lease 1,260
Property expenses (12,900 x 1/3) 4,300
Good for own use (selling price) 450
Fine in respect of health and safety regulations 400
Donation to political party 80
Trade subscription 0
______
9,715
Less
Private telephone (1,200 x 20%) (240)
Capital allowances (810)
_____
Tax adjusted trading profit 30,665
======

(c) (i) Na Style – Income tax computation 2009/10

£
Trading profit 30,665
Building society interest (560 x 100/80) 700
Interest from individual savings account (exempt) -
Interest from savings certificate (exempt) -
Interest from government stocks 370
Dividends (1,080 x 100/90) 1,200
______
32,935
Personal allowance (6,475)
______
Taxable income 26,460
========
Dividends 1,200
Savings 1,070
Other (balancing figure) 24,190
______
26,460
========

39
 Income tax
£
24,190 at 20% 4,838
1,070 at 20% 214
1,200 at 10% 120
______
26,460
======= ______
Income tax liability 5,172
Less tax credits on dividends
(1,200 at 10%) (120)
Less tax suffered at source
Building society interest (700 at 20%) (140)
_____
Income tax payable 4,912
=======

(ii) Tax payments

(1) Na’s balancing payment for 2009/10 due on 31 January 2011 is £1,712
(4,912 – 3,200).

(2) Her payments on account for 2010/11 will be £2,456 (4,912 x 50%). These
will be due on 31 January 2011 and 31 July 2011.

(d)

(1) Interest is charged where a balancing payment is paid late. This will run
from the due date of payment (31 January 2011) to the actual date of
payment (31 May 2011).

(2) The interest charge will be £14 (1,712 x 2·5% x 4/12).

(3) In addition, a 5% surcharge of £86 (1,712 at 5%) will be imposed as the

balancing payment is not made within 28 days of the due date.

40
Question 2 – Crash-Bash Ltd

(a) (i)

(1) Companies are treated as resident in the United Kingdom if they are either
incorporated in the UK or, if incorporated overseas, their central
management and control is exercised in the UK.

(2) Since the directors are UK based and hold their board meetings in the UK,
this would indicate that Crash–Bash Ltd is managed and controlled from the
UK, and therefore will be treated as resident in the UK.

(ii) Crash–Bash Ltd – Corporation tax liability for the period ended 31
March 2010

£ £
Trading profit - UK 415,400
Advertising expenditure 12,840
Capital allowances - P&M (W1) 59,260
- IBA (W2) 3,300
______
(75,400)
_______
340,000
Trading profit - Overseas (15,000 x 100/75) 20,000
_______
Profits chargeable to corporation tax 360,000
========

Corporation tax (W3)

£360,000 at 28% 100,800
Marginal relief
7/400 (562,500 – 400,000) x 360,000/400,000 (2,559)
_______
98,241
Double taxation relief (W4) (5,000)
_______
Corporation tax payable 93,241
========

41
Note

As the advertising expenditure incurred during June 2009 was incurred within the
seven years prior to the commencement of trade and is the type of expense that
would be allowable had trade already commenced, it qualifies as allowable ‘pre-
trading expenditure’ and as such is effectively treated as incurred on 1 July 2009.
As no adjustment has yet been made, it is therefore deductible against trading
profits of the nine-month period ended 31 March 2010.

Working 1 – Plant and machinery

FYA AIA FYA Pool Claimed

£ £ £ £ £
Additions
Machinery 37,500 25,000
Motor car 13,200
Disposals (3,600)
______ ______ ______
13,200 37,500 21,400
FYA at 100% (13,200) 13,200
AIA (37,500) 37,500
FYA at 40% (8,560) 8,560
______
Total allowances 59,260
______ ______ ______ =======
Nil Nil 12,840
======= ======= =======
TWDV cfwd 12,840
=======
Note

The annual investment allowance is reduced to £37,500 (50,000 x 9/12) because

Crash–Bash Ltd’s accounting period is nine months long. However, first year
allowances are always given in full, regardless of the length of the accounting
period.

Working 2 – Industrial buildings allowance

(1) The cost of the land does not qualify, so the qualifying cost is £220,000
(320,000 – 100,000).

(2) The accounting period is nine months long, so the WDA is £3,300 (220,000
at 2% = 4,400 x 9/12).

42
Working 3 – ‘Profits’
£
Profits chargeable to corporation tax 360,000
Franked investment income (36,000 x 100/90) 40,000
_______
‘Profits’ 400,000
========
Lower limit (300,000 ÷ 2 x 9/12) 112,500
Upper limit (1,500,000 ÷ 2 x 9/12) 562,500

Therefore, marginal company

Note

Crash-Bash Ltd has an associated company (Safety Inc) therefore the upper and
lower limits are divided by two. As Crash-Bash Ltd’s accounting period is only
nine months long it is further reduced to x 9/12.

Working 4 – Double tax relief on the overseas branch profits

Double tax relief is the lower of: £

- Overseas tax (20,000 x 25%) 5,000

- UK tax at the effective rate

98,241/360,000 x 20,000 5,458

(iii)

(1) Invoicing for the exported crash helmets at less than the market price will
reduce UK trading profits and hence UK corporation tax.

(2) A true market price will therefore have to be substituted for the transfer
price.

(3) The true market price is the ‘arms length’ price that would be charged if the
parties to the transaction were independent of each other.

(4) Crash–Bash Ltd will be required to make the adjustment in its corporation
tax self-assessment tax return.

43
(b) (i)

(1) Under the ‘future test’ traders must register for VAT if at any time they
expect their taxable supplies for the following 30-day period to exceed
£68,000.

(2) Crash–Bash Ltd realised that its taxable supplies for September 2009 were
going to be at least £100,000. The company was therefore liable to register
from 1 September 2009, being the start of the 30-day period.

(3) Crash–Bash Ltd had to notify HMRC by 30 September 2009, being the end
of the 30-day period.

(ii)

(1) Pre registration input VAT can be recovered in certain circumstances.

(2) On goods (stock and capital assets) which have been acquired in the three
years prior to registration and which are still held at the date of registration
and on services supplied in the six months prior to registration.

(3) Therefore, input VAT of £16,290 (108,600 x 15%) can be recovered on the
stock of goods at 1 September 2009 and input VAT of £8,250 (22,300 +
32,700 = 55,000 x 15%) can be recovered on the services incurred from 1
July to 31 August 2009.

(4) The total input VAT recovery is therefore £24,540 (16,290 + 8,250).

(iii)

(1) If the net errors totalled less than the higher of £10,000 or 1% of the
turnover for the VAT period, then they could have been voluntarily disclosed
by simply entering them on the VAT return for the quarter ended 28
February 2010.

(2) If the net errors exceeded the limit, they could have been voluntarily
disclosed but disclosure would have been made separately to HMRC.

(3) Default interest would only have been charged where the limit was
exceeded and it was therefore necessary to make separate disclosure to
HMRC.

44
Question 3 – Amanda, Bo and Charles

(a) (i)

(1) Amanda has chargeable gains of £135,000 calculated as follows:

Goodwill Freehold shop Total

£ £ £
Proceeds 90,000 165,000
Cost (nil) (120,000)
_______ _______ _______
90,000 45,000 135,000
======== ======== ========
(2) The consideration from Ammoon Ltd is entirely in the form of shares, so all
of Amanda’s chargeable gains can be rolled over.
£
Total gains 135,000
Less incorporation relief (135,000)
_______
Chargeable gains Nil
========

(3) The base cost of the 300,000 £1 ordinary shares will be:
£
Market value of all assets transferred 300,000
Less incorporation relief (135,000)
_______
165,000
========

(a) (ii)

(1) If the consideration for the transfer had been part shares and part cash,
then the proportion of the gain relating to the consideration taken in cash
would be chargeable.
£
Total gains 135,000
Less incorporation relief (balancing figure) (90,000)
_______
Chargeable gains 45,000
========

45
(2) The chargeable gains figure is calculated as follows:

Total gains x cash/market value of all assets transferred

135,000 x 100,000/300,000 = £45,000

(3) The base cost of the 200,000 £1 ordinary shares will be:
£
Market value of all assets transferred 300,000
Less cash (100,000)
_______
Market value of shares 200,000
Less incorporation relief (90,000)
_______
110,000
========

Note

The number and nominal value of the shares is irrelevant.

(b) (i)

(1) As the shares are being gifted, the market value of the shares is used as
proceeds. Bo therefore has a chargeable gain as follows:
£
Proceeds (market value) 210,000
Less cost (94,000)
_______
Gain 116,000
========

(2) Since this is an outright gift (no consideration has been paid for the shares)
and Bo and his son have elected to hold over the gain, all of Bo’s chargeable
gain can be held over.
£
Gain 116,000
Less gift relief (116,000)
_______
Chargeable gain Nil
========

(3) The base cost of the son’s 50,000 £1 ordinary shares in Botune Ltd will be
as follows:

46
 £
Market value of shares transferred 210,000
Less gift relief (116,000)
_______
94,000
========

(b) (ii)

(1) If the shares had instead been sold at an undervalue to Bo’s son (partial
consideration), then the gain is calculated on Bo using market value as
proceeds but some of the gain is (potentially) chargeable immediately.

£
Gain 116,000
Less gift relief (balancing figure) (50,000)
_______
Chargeable 66,000
========

(2) The amount chargeable is the excess of actual proceeds (£160,000) over
original cost (£94,000).

(3) The base cost of the son’s 50,000 £1 ordinary shares in Botune Ltd will be
as follows:
£
Market value of shares transferred 210,000
Less gift relief (50,000)
_______
160,000
========

(c) (i)

(1) Charles’ chargeable gain on the house is £64,500 calculated as follows:

£
Proceeds 282,000
Cost (110,000)
________
172,000
Principal private residence exemption (107,500)
________
64,500
=========

47
(2) The total period of ownership of the house is 144 months (90 + 54), of
which 90 months qualify for exemption as follows:

Exempt Chargeable Total

1 October 1997 – 31 March 1999 18 18
(occupied)
1 April 1999 – 30 September 2006 36 54 90
(unoccupied)
1 October 2006 – 30 September 2010 36 36
_____ _____ _____
90 54 144
====== ====== ======

(3) Of the period 1 April 1999 t0 30 September 2006, 36 months is deemed

occupation (three years any reason which is both preceded and followed by
actual occupation).

(4) The last three years of ownership is always deemed occupation provided
that the house has been the owner’s principal private residence for at least
some of the period of ownership.

(5) The principal private residence exemption is therefore £107,500 (£172,000

x 90/144).

(c) (ii)

(1) The letting relief exemption will be £40,000, as this is lower than both
£107,500 (the amount of the gain exempt under the principal private
residence rules) and £64,500 (the amount of the non-exempt gain
attributable to the period of letting (£172,000 x 54/144)).

(2) Charles’ chargeable gain will therefore be reduced to £24,500 (£64,500 –

40,000).

48
Question 4 – Simon House

(a) Badges of trade

Subject matter
Assets are normally acquired for one of three reasons;
1. For personal use
2. As investments
3. To sell on for a profit
Where the subject matter of a transaction is one that is clearly not for personal
use or as an investment asset, then any profit on resale will usually be treated as
a trading profit.

Length of ownership
A short period of ownership may indicate that the items was acquired with the
intention of selling it on for a profit and would therefore indicate trading.

Frequency of transactions
The more frequently similar transactions are carried out, the more likely it is that
the disposer will be treated as carrying on a trade. Transactions carried out in
isolation are more likely to be of a capital nature.

Work done
When work is carried out on an asset to improve it, to make it more marketable,
or steps are taken to find purchasers (for example, advertising), then this is likely
to indicate that a trade is being carried on.

Circumstances of realisation
A forced sale, for example to raise funds for an emergency, is not likely to be
treated as trading.

Motive
The presence of a profit motive is a strong indication that a person is trading,
however the absence of a profit motive may not necessarily mean that the profit
will not be assessed as a trading profit.

(b) Simon House – Income tax and NICs if trading

£ £
Income 260,000
Less costs incurred
House 127,000
Legal fees on acquisition 1,800
Renovation 50,600
Legal fees on sale 2,600
Loan interest (£150,000 x 6% x 4/12) 3,000

49
 _______
(185,000)
_________
Trading/net income 75,000
PA (6,475)
_________
Taxable income 68,525
==========
Income tax
£37,400 at 20% 7,480
£31,125 at 40% 12,450
_______
19,930
========
Class 4 NICs
£5,715 at 0%
£38,160 at 8% 3,053
_______
£43,875
£31,125 at 1% 311
_______
£75,000 _______
========= 3,364
========
Class 2 NICs
£2.40 x 19 weeks (see note) 46
========

Note
Class 2 contributions are paid for complete weeks, running from midnight on
Sunday to the following midnight on Saturday, during which self employed
activity takes place for the whole or part of the week. In this case, the first week
starts at midnight on Sunday 26 April 2009 and the last week ends on Saturday 5
September 2009, which comprises 19 weeks.

Credit will be given by the examiner for any reasonable attempt at this calculation
(i.e. recognising that Class 2 NICs were only due during the period of trading, not
for the whole year 2009/10).

(c) Simon House – capital gains tax if not trading

£ £
Sale proceeds 260,000
Less legal fees on sale (2,600)

50
 _________
Net proceeds of sale 257,400
Less:
Cost of house 127,000
Legal fees on acquisition 1,800
Renovation 50,600
Loan interest -
_______
(179,400)
_________
Chargeable gain 78,000
AE (10,100)
_________
Taxable gain 67,900
==========
Capital Gains Tax
£67,900 @ 18% 12,222
========

Note
The loan interest is a revenue expense and so is not allowable in computing the
chargeable gain.

51
Question 5 – Volatile Ltd

(a)

(1) The main consideration that will influence a company’s choice of loss relief
is the rate of corporation tax at which relief will be obtained. Companies
would prefer to relieve losses against profits that would normally be taxed
at the marginal rate of 29·75% or the full rate of 28%.

(2) Another consideration is the timing of the relief obtained and the Cashflow
implications. Companies would generally prefer to relieve losses as soon as
possible, and a claim against total profits (under s.393A ICTA 1988) would
result in earlier relief (and a cashflow benefit) than a claim (under s.393(1)
ICTA 1988) against future trading profits.

(3) Another consideration is the extent to which relief for gift aid donations will
be lost, as if these are not relieved in the accounting period of payment,
they cannot be carried forward or carried back.

(b)
Period ended Year ended Year ended Period
ended
31 31 31 30
December December December September
2005 2006 2007 2008
£ £ £ £
Trading income 44,000 Nil 95,200 78,700
S393 cfwd (8,700)
______
86,500
Property income 9,400 6,600 6,500 -
Chargeable gains 5,100 - - 9,700
______ ______ ______ ______
58,500 6,600 93,000 88,400
S393 cy (6,600)
S393 cb (58,500) (23,250) (88,400)
Extended cb (50,000)
______ ______ ______ ______
Nil Nil 19,750 Nil
Gift aid donations (800) (1,000) (1,200) -
______ ______ ______ ______
PCTCT Nil Nil 18,550 Nil
======= ======= ======= =======

52
(1) The trading loss of £73,800 for the year ended 31 December 2006 is
relieved as follows:

£
Loss 73,800
Year ended 31 December 2006 (6,600)
Period ended 31 December 2005 (58,500)
Year ended 31 December 2007 (8,700)
______
-
=======

(2) The trading loss of £166,800 for the year ended 30 September 2009 is
relieved as follows:

£ £
Loss 166,800
Year ended 30 September 2009 -
Period ended 30 September 2008 (88,400)
Year ended 31 December 2007
3/12 x £93,000 23,250
Extended carry back
Year ended 31 December 2007 (max) 50,000
______
(73,250)
______
Loss to carry forward 5,150
=======

53
54
 ACCA F6
June 2010 Exam
answers

55
Question 1 – Auy Man and Bim Men

(a) (1) Auy will be treated as resident in the United Kingdom for 2009/10 as
she was physically present in the United Kingdom for 183 days or
more in that tax year.

(2) Bim will be treated as resident in the United Kingdom for 2009/10 as
she has made frequent and substantial visits to the United Kingdom,
averaging 91 days or more over four consecutive tax years.

(b) Trading profit for the year ended 5 April 2010

£ £
Net profit 82,000
Add back
Depreciation 3,400
Input VAT 0
Motor expenses (2,600 x 30%) 780
Entertaining employees 0
Appropriation of profit 4,000
Excessive salary (15,000 – 10,000) 5,000
_______
13,180
Deduct
Capital allowances (working) (15,180)
_______
Trading profit 80,000
========

Notes

(1) No adjustment is required in respect of the input VAT as the expense figures
are already exclusive of VAT.

(2) Entertainment expenditure is only deductible against trading profits when it

is in respect of employees.

56
Working – Capital allowances

FYA Pool Motor Motor car Special Claimed

car (1) (2) BU = rate
BU = 70% pool
70%
£ £ £ £ £ £
TWDV bfwd 3,100 18,000 14,000
Additions
Motor car (3) 11,600
Motor car (4) 14,200
Motor car (5) 8,700
Disposals
Motor car (2) (13,100)
_____ _____ _____ _____ _____
11,600 17,300 18,000 900 8,700
BA (900) 630
_____
Nil
======
FYA (11,600) 8,120
WDA 20% (3,460) 3,460
WDA (max) (3,000) 2,100
WDA 10% (870) 870
______
15,180
_____ ______ ______ _____ ======
TWDV cfwd Nil 13,840 15,000 7,830
====== ======= ======= ======
Notes

(1) Motor car (1) was owned at 6 April 2009 and therefore continues to qualify
for writing down allowance at the rate of 20% subject to a maximum of
£3,000 per annum.

(2) For motor cars purchased on or after 6 April 2009 the following rules apply:

CO2 emissions of:

No more than 110 g/km = 100% first year allowance (motor car (3))

111 – 160 g/km = 20% writing down allowance (motor car (4))

More than 160 g/km = 10% writing down allowance (motor car (5))

57
Trading income assessments 2009/10

Auy Man Bim Men Total

£ £ £
Salary 4,000 4,000
Interest on capital
(56,000/34,000 at 5%) 2,800 1,700 4,500
Balance shared 80:20 57,200 14,300 71,500
______ ______ ______
60,000 20,000 80,000
======= ======= =======

(c)

(1) Auy’s class 4 NIC for 2009/10 will be:

£ £
5,715 at 0% 0
38,160 at 8% 3,053
______
43,875
16,125 at 1% 161
______ ______
60,000 3,214
======= =======

(2) Bim’s class 4 NIC for 2009/10 will be:

£ £
5,715 at 0% 0
14,285 at 8% 1,143
______ ______
20,000 1,143
======= =======

(d)

(i) Tax point

(1) The basic tax point for services is the date of completion.

(2) However, if before the basic tax point either an invoice is issued or payment
is received, then this becomes the actual tax point. If both occur, then the
earlier is taken.

(3) The 14 day rule states that if an invoice is issued within 14 days after the
basic tax point, then the invoice date may be taken as the tax point. The
trader can elect not to apply the 14 day rule.

58
(ii) VAT paid for the year ended 5 April 2010

£
Output VAT 21,600
Input VAT (180 + 140) (320)
______
VAT paid to HMRC during the year 21,280
=======

(iii) Flat rate scheme

(1) The partnership can join the flat rate scheme if its taxable turnover
(excluding VAT) for the next 12 months is not expected to exceed
£150,000.

(2) The partnership can continue to use the scheme until its total turnover
(including VAT, but excluding sales of capital assets) for the previous year
exceeds £225,000.

(3) If the partnership had used the flat rate scheme throughout the year ended
5 April 2010 then it would have paid VAT as follows:

VAT inclusive turnover = £142,200 + 21,600 = £163,800

VAT flat rat percentage = 11%

Therefore, VAT paid to HMRC during the year = 163,800 x 11% = £18,018.
(4) This represents a VAT saving of £3,262 (21,280 – 18,018) for the year.

59
Question 2 – Mice Ltd

(a) (i) Mice Ltd – Property business profit for the year ended 31 March 2010

£ £
Rent receivable - Property 1 (3,200 x 4) 12,800
- Property 2 6,000
- Property 3 -
______
18,800
Proportion of premium received on grant of sub-lease
(51 – 8)/50 x 18,000 15,480

Expenses - Business rates 2,200

- Repairs 1,060
- Rent paid 7,800
- Advertising 680
- Insurance
(460 + 310 + (480 x 3/12)) 890
- Loan interest -
______
(12,630)
______
Property business profit 21,650
=======
Notes

(1) The enlargement of the car park is capital expenditure and therefore not
deductible in calculating the property business profit.

(2) Interest paid in respect of a loan used to purchase property is not an

allowable deduction against property income but is instead an allowable
deduction against interest income under the loan relationship rules.

60
(ii) Mice Ltd – Profits chargeable to corporation tax for the year ended
31 March 2010

£
Property business profit (as (i)) 21,650
Loan interest (6,400 + 3,200 – 1,800) 7,800
Overseas income -
Chargeable gain 10,550
______
40,000
Loss relief (s.393A) (40,000)
______
Profits chargeable to corporation tax -
=======
Note

The overseas dividend is exempt. However, it is treated as franked investment

income when calculating profits for corporation tax purposes.

Mice Ltd – Profits chargeable to corporation tax for the periods ended 31
March 2007, 2008 and 2009
Period ended Year ended Year ended
31 March 31 March 31 March
2007 2008 2009
£ £ £
Trading profit 83,200 24,700 51,200
Property business profit 2,800 7,100 12,200
______ ______ ______
86,000 31,800 63,400
Loss relief (s.393A) (18,200) (31,800) (63,400)
______ ______ ______
67,800 - -
Gift aid donations (1,000) - -
______ ______ ______
PCTCT 66,800 - -
======= ======= =======

Notes

(1) There is no restriction to the amount of loss relief that can be claimed for
the year ended 31 March 2009 as this is within the normal 12 month carry
back period.

(2) For losses carried back beyond the normal 12 month carry back period, the
amount is restricted to £50,000. Therefore for the year ended 31 March
2008 £31,800 of the loss is relieved, leaving a maximum of £18,200
(£50,000 - £31,800) to be carried back to the period ended 31 March 2007.

61
Loss memo

The trading loss of £180,000 for the year ended 31 March 2010 is relieved as
follows:
£ £
Loss 180,000
Year ended 31 March 2010 (40,000)
Year ended 31 March 2009 (63,400)
Year ended 31 March 2008 31,800
Period ended 31 March 2007 18,200
______
(50,000)
______
Unrelieved as at 31 March 2010 26,600
=======

(b)
Mice Ltd
Year ended 31 March 2010

Web-Cam Ltd
3 month period Year ended 30 June 2010
ended 30 June
2009

(1) Group relief is available to qualifying group companies. Where the

companies do not have the same year end and/or have joined or left the
group part way through the accounting period, group relief is restricted to
‘corresponding accounting periods’; i.e. the extent to which the companies’
accounting periods overlap with each other.

(2) Loss relief is restricted to the lower of:

- the profit in the corresponding accounting period and

- the loss in the corresponding accounting period.

(3) Web-Cam Ltd’s three-month period ended 30 June 2009 overlaps with Mice
Ltd’s year ended 31 March 2010 by three months (1 April 2009 to 30 June
2009). Web-Cam Ltd’s year ended 30 June 2010 overlaps with Mice Ltd’s
year ended 31 March 2010 by nine months (1 July 2009 to 31 March 2010).

(4) The maximum loss that can be surrendered from Mice Ltd to Web-Cam Ltd
is therefore as follows:

62
 In Web-Cam Ltd’s period ended: 30 June 2009
£
Lower of:

- Loss in corresponding period

3/12 x £180,000 45,000

- Profit in corresponding period 28,000

Therefore, £28,000

In Web-Cam Ltd’s year ended: 30 June 2010

£
Lower of:

- Loss in corresponding period

9/12 x £180,000 135,000

- Profit in corresponding period

9/12 x £224,000 168,000

Therefore, £135,000

(c)

Equipment

(1) The first £50,000 of expenditure on equipment will be covered by the

annual investment allowance and the balance of £25,000 will qualify for the
40% first year allowance as the expenditure will be incurred between the
qualifying dates of 1 April 2009 and 31 March 2010.

(2) Capital allowances will therefore be £60,000 (50,000 + (25,000 at 40%)).

Ventilation system

(1) The ventilation system is an integral feature. The first £50,000 of

expenditure will be covered by the annual investment allowance as above
but the balance of £25,000 will not qualify for the 40% first year allowance
as this is not available on integral features. It will instead go into the special
rate pool and qualify for the 10% writing down allowance.

(2) Capital allowances will therefore be £52,500 (50,000 + (25,000 at 10%)).

63
(d)

(1) The managing director existing remuneration is £80,000 for 2009/10 which
means that any additional remuneration will be taxed at his marginal rate of
40% and additional cash remuneration will be subject to employee’s Class 1
Primary NIC at his marginal rate of 1%.

(2) His additional income tax liability will therefore be £16,000 (40,000 at 40%)
and his additional Class 1 Primary NIC will be £400 (40,000 at 1%).

(3) His employer will be liable to additional Class 1 Secondary NIC at the rate of
12.8%; therefore £5,120 (40,000 at 12·8%).

64
Question 3 – Problematic Ltd

(a) Profits chargeable to corporation tax for the year ended 31 March 2010

£ £
Trading profits 108,055
Chargeable gains
- Easy plc shares (working 1) 30,195
- Insurance proceeds (working 2) -
- Freehold factory (working 3) 16,200
- Land (working 4)
______
91,945
______
PCTCT 200,000
=======

Working 1 – Easy plc 1985 Pool

Number Cost Indexed cost

£ £
Purchase June 1994 15,000 12,600 12,600
Indexation to September 2006
12,600 x (200·1 – 144·7)/144·7 4,824
Rights issue September 2006
15,000 x 1/3 = 5,000 x £2·20 5,000 11,000 11,000
______ ______ ______
20,000 23,600 28,424
Indexation to June 2009
28,424 x (213·0 – 200·1)/200·1 1,832
______
30,256
Disposal June 2009 (16,000)
Cost x 16,000/20,000 (18,880)
Indexed cost x 16,000/20,000 (24,205)
______ ______ ______
4,000 4,720 6,051
Balance carried forward ======= ======= =======

£
Disposal proceeds 54,400
Cost (18,800)

65
 ______
35,250
Indexation (24,205 – 18,880) (5,325)
______
Chargeable gain 30,195
=======

Working 2 – Office building

(1) The receipt of insurance proceeds could lead to a part disposal calculation
and therefore a chargeable gain. However as the full amount received has
been used in restoring the office building and Problematic Ltd has made a
claim to defer the gain arising, a form of rollover relief is available which
means that no gain arises.

(2) The proceeds received are deducted from the cost of the building for a
future disposal.

Working 3 – Freehold factory

£
Disposal proceeds 171,000
Indexed cost (127,000)
______
44,000
Rollover relief (balancing figure) (27,800)
______
Chargeable gain 16,200
=======

(1) Where there is only partial reinvestment of the sale proceeds, then some
(or all) of the gain is chargeable.

(2) The amount chargeable is the lower of:

- the full gain of £44,000

- the proceeds not reinvested, i.e. 171,000 – 154,800 = £16,200.

(3) The balance of the gain (44,000 – 16,200 = 27,800) can be rolled over.

Working 4 – Land

£
Disposal proceeds 130,000
Incidental costs of disposal (3,200)
______
126,800
Indexed cost
300,000 x 130,000/(130,000 + 350,000) (81,250)

66
 ______
Chargeable gain 45,550
=======

(b)

(1) The indexed base costs to be carried forward are as follows:

£ £
4,000 shares in Easy plc 6,051
======
Office building
Original indexed cost 169,000
Less insurance proceeds received (36,000)
Plus enhancement expenditure (restoration costs) 41,000
_______
174,000
========

Leasehold factory (see note) 154,800

========

Remaining three acres of land

Indexed cost of original four acres 300,000
Less proportion of cost used in part disposal (81,250)
_______
218,750
========
Note

The leasehold factory is a depreciating asset, as the lease is for twenty years.

This means that it has an expected life of no more than 50 years (or will become
one within 10 years).

When a replacement asset is a depreciating asset then the gain is not rolled over
by reducing the cost of the replacement asset. Instead, the gain is deferred until
it crystallises on the earliest of:

– The disposal of the replacement asset.

– The date the replacement asset is no longer used in the business.

– Ten years after the acquisition of the replacement asset, which in this case
is 10 December 2019.

67
Question 4 – Ernest Vader

(a)

(1) Tax evasion is illegal and entails breaking the law to achieve a tax
advantage, for example by not providing information to HMRC such as not
declaring taxable income or by providing HMRC with deliberately false
information, such as understating income or overstating expenses.

(2) Tax avoidance covers most situations where a tax advantage is achieved by
lawful means, such as investing in registered pension schemes or ISAs or
simply having regard to the advantageous timing of a transaction. However
in recent years HMRC have required certain tax avoidance schemes to be
disclosed.

(3) If Ernest does not disclose his capital gain then this will be tax evasion as
he is deliberately withholding information from HMRC which will result in his
tax liability for 2009/10 being understated by £18,000.

(b)

(1) A trainee Chartered Certified Accountant is expected to act honestly and

with integrity with regard to their own affairs and those of clients.

(2) Ernest should be strongly advised to disclose details of the capital gain to
HMRC. The Chartered Certified Accountant’s duty of confidentially means
that the disclosure could not be made by you, unless you have Ernest’s
permission to disclose on his behalf or there is a statutory duty to do so (for
example, under the money laundering regulations).

(2) If he refuses to disclose or prevaricates, then you should:

- Consider ceasing to act for him, and if you decide to do this, then
- Notify HMRC that you no longer act for Ernest, although a reason
should not be given.
- Report the tax evasion under the money laundering regulations.

(c)

(1) HMRC can request information from Ernest by issuing a written information
notice.

(d)

(1) Discovery assessments can be made where it is believed that there has
been careless or deliberate understatement by the taxpayer or HMRC did
not have information to be aware of the loss of tax

(2) The normal time limit for making a discovery assessment is four years after
the end of the tax year, but this time limit is extended to 20 years where
tax is lost due to deliberate understatement.

(3) A discovery assessment can therefore be raised because Ernest’s self-

assessment tax return contained a deliberate understatement (i.e. the non

68
 declaration of the gain) and HMRC did not have sufficient information to be
aware of the capital gain.

(e) (i)

(1) Interest will run from the due date for payment of 31 January 2011 to the
actual date of payment of 31 July 2011.

(2) The interest charge will be £225 (18,000 x 2·5% x 6/12).

(ii)

(1) The amount of penalty is based on the potential lost revenue to HMRC (i.e.
tax due but unpaid) as a result of the failure to notify, but it is also linked to
the taxpayer’s behaviour. The maximum penalty is 100% of the potential
lost revenue (i.e. the CGT liability of £18,000).

(2) It appears that although Ernest has deliberately failed to notify HMRC of his
capital gain, there has been no attempt at concealment, therefore the
penalty is likely to be 70% of the tax unpaid which is £12,600 (18,000 x
70%). This is in addition to the tax itself.

(3) The penalty would be substantially reduced if Ernest had disclosed the
capital gain, especially if the disclosure had been unprompted by HMRC
prior to discovery. The maximum reduction would be to 20% of the tax
unpaid.

69
Question 5 – Quagmire plc

(a)

(1) Large companies (those paying corporation tax at the full rate) must make
quarterly instalment payments in respect of their corporation tax liability.

(2) One exception to this applies in the accounting period that the company
becomes large, that provided profits do not exceed £10 million.

(3) In the year ended 31 January 2010 Quagmire plc’s profits are £1,400,000
(PCTCT of £1,200,000 plus franked investment income of £200,000). Its
lower and upper limits are £150,000 and £750,000 respectively as it has
one associated company which means that Quagmire plc is large and
therefore paying corporation tax at the full rate.

(4) Quagmire plc was also a large company for the year ended 31 January
2009, so the exception outlined above does not apply.

(5) Therefore, quarterly instalment payments are due as Quagmire plc is large
this year and was large last year.

(b)

(1) Quagmire plc’s corporation tax liability for the year ended 31 January 2010
is £336,000 (£1,200,000 at 28%).

(2) The four quarterly instalment payments would therefore have been £84,000
each (336,000/4).

(3) The due date for payment of the instalments will have been as follows:

First instalment
6 months and 14 days from the start of the period: 14 August 2009

Second instalment
9 months and 14 days from the start of the period: 14 November 2009

Third instalment
14 days from the end of the period: 14 February 2010

Fourth instalment
3 months and 14 days from the end of the period: 14 May 2010

(c)

(1) If Quagmire plc did not have an associated company, its lower and upper
limits would be £300,000 and £1,500,000 respectively. As its ‘profits’ for
the year ended 31 January 2010 are £1,400,000 and therefore between the
limits, the company would be marginal.

70
(2) The corporation tax liability would be calculated as follows:

£
Corporation tax
1,200,000 at 28% 336,000
Marginal relief
7/400 (1,500,000 – 1,400,000) x 1,200,000/1,400,000 (1,500)
_______
334,500
========

(3) This will be payable in one lump sum within nine months and one day after
the end of the accounting period, i.e. on 1 November 2010.

71