Principles of Tax

Question 1

The five fundamental principles of the IESBA Code of Ethics are:

Answer 1

Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional Behaviour

Question 2

Who makes a suspicious activity report?

Answer 2

MLRO as accountant responsibility only to report to these.

Question 3

Which of the following are never a form of UK tax law?
-The annual finance act
-HMRC statements of practice
-case law
-statutory instruments

Answer 3

HMRC Statements of Practice
A Finance Act is an Act of Parliament and is therefore a source of law. Case law generally sets a
precedent which must be followed unless overruled on appeal or superseded by legislation.
Statutory instruments are a form of delegated legislation which are a form of law. Statements of
practice are merely a statement of HMRC’s interpretation of the law.

Question 4

Define progressive and regressive taxation.(2)

Answer 4

A system whereby the overall proportion of taxation increases as income rises is known as a
progressive system.
Regressive decreases tax as income rises eg NI

Question 5

What may a tax payer make appeals over?(7) What are certain conditions of an appeal?(2)

Answer 5

-An information notice
-Documentation request in course of compliance check
-Amendments made resulting from a compliance check
-HMRC’s right to raise a discovery assessment
-A discovery assessment
-A VAT assessment
-The imposition of a penalty

Must be made in writing within 30 days and state grounds, any tax due will have to be paid unless postponed, if not settled by agreement a first-tier tribunal hearing will occur

Question 6

When does the financial year run vs tax year?(2)

Answer 6

Financial year is 1st april to 31st of march
Tax year is 6th of april to 5th of april

Question 7

Indirect/direct principle

Answer 7

Paid by those who generate funds (direct), indirect are transaction based and related to consumption eg VAT

Question 8

Case law fact.(2)

Answer 8

Many judgments from tax cases are precedent for future cases which means they must be followed
unless superseded by legislation or the decision of a higher court. Therefore, this is not guidance.
There is also no 12-month time limit and subsequent legislation can change the law

Question 9

Unit/value principle

Answer 9

unit taxes are a flat rate per item eg beer duty depends on strength not price, value taxes are a percentage of value eg VAT

Question 10

ability to pay/benefit principle

Answer 10

tax based on ability to pay or on benefit received argument.

Question 11

Are HMRC involved in pension administration or child support?

Answer 11

No.

Question 12

Describe a statutory instrument.(1)

Answer 12

Tax legislation, commonly in the form of Regulations, containing detailed provisions

Question 13

How would you adjust personal allowance (PA) for those with income over 100k?

Answer 13

Deduct: net-100k*0.5

Question 14

What is the startings rate tax for savings?

Answer 14

up to 5k only if savings income falls into the first 5k of taxable income-it may also be reduced or eliminated by non-savings,

Question 15

What is the savings income nil rate band?

Answer 15

Available for those with income below 150k whos savings are not covered by SRB, it is 1000 for basic tax payers and 500 for higher

Question 16

What are the income tax bands for dividends?

Answer 16

7.5, 32.5, 38.1
Note: First 2k. is nil

NOTE: The 2k reduces the bands for tax too eg 37700 to 35700

Question 17

Explain gift aid and how you compute it depending on tax band.(4)

Answer 17

Extends tax bands for highers, tax efficient charitable donation gives 20% relief

In basic no adjustment is needed in income tax calc as appropriate amount of tax relief has been given at the source by paying net of basic rate income tax

For higher a max 20% relief is given by increasing the higher rate threshold by the gross amount of the gift

For additional a max of 25% is given to higher and additional thresholds

Reason is because its as if the income hadnt been taxed for income hence adjustment depends on tax band as this is what they have been taxed on.

Question 18

What is something important to remember about marriage allowance?(1)

Answer 18

It doess not reduce liability or PA of transferee but reduces liability by 20%.

Question 19

Calculating tax codes.(3)

Answer 19

Max of 3k underpaid can be collected through the tax code and will be deducted from PA! but needs to be grossed up

step 1: note allowances
step 2: IF allowances>deductions take net figure remove last digit and add an L
IF deductions>allowances take net remove last figure THEN deduct 1 and add K to front
If received marriage will be M if transferred will be N

Question 20

What are badges of trade?(9)

Answer 20

-subject matter
-length of ownership
-frequency of similar transactions by the same person
-supplementary work and marketing
-circumstances responsible for realisation
-motive
-methods of finance used in acquisition
-method of acquistion and source
-similar transactions to those of existing trade

Ways of determining trade according to HMRC, trading-income tax, capital=capital gains tax

Question 21

Trading allowance.(4)

Answer 21

-1k allowance for sole traders NOT partnerships
-if profits are less than 1k they are not taxable and do not need declared
-if more taxpayer can elect to deduct allowance from receipts rather than any actual expenses incurred
-IN EXAM assume TA applies if receipts less or equal to 1k and if more assume no election to use the TA has been made unless told otherwise.

NOTE: trading income=receipts-trading allowance or if less then not declarable

Question 22

What quantifies a trivial benefit?(3)

Answer 22

-£50 or less-cap of 300 pa for certain directors
-it is not cash or a voucher
-it is not provided in recognition of services

Question 23

What qualifies as an exempt employer benefit from income tax?(13)

Answer 23

-free/onsite canteen (available to ALL)
-sports facilities for EMPLOYEES not public and bicycles for ALL
-workplace childcare or vouchers for approved childcare
-one health screen per year and checkup, glasses and eyes tests up to 500 pa for treatment for return to work NOT private healthcare
-work buses and subsidies for public/travel expenses for disrupted travel and vehicle charging at or near work where it is ot a taxable vehicle PLUS provision of parking space
-employer pension contribution plus advice up to 500 pa
-mobile phone inc private use
-150 pa for social events -if more FULL amount is taxable not just excess and must be an annual event to qualify, if more than one total cost of events less than 150 will be exempt and the remainder will be taxable
non-cash service awards for more than 20 years or equal (max 50 per year of service)
-up to 5k in staff suggestion scheme
-8k removal expenses
-non-cash gifts from third parties up to 250 and entertainment provided by third parties no cap
-payments towards costs of working from home if >£6/week and work related training courses
-personal incidental expenses when away from home of 5 a night in UK and 10 abroad if limit exceed whole is taxable

Question 24

What would classify as job-related accom?(2)

Answer 24

-Job-related accom is not taxable and would be classed as such if:
necessary for performance of duties
customary to be provided
provided for security
-For a director:
must own no more than 5% shares
-be a full time working director (unless NFP/charity)

Question 25

If an employer rents a property the benefit is…

Answer 25

The higher of annual or rateable value and rent paid by employer.contributions are deducte

Question 26

If employer owns the property…

Answer 26

The basic os the rateable value-if over 75k addition of ‘cost’-75k*rate of tax for start of the year
cost is generally purchased valued but if over 6 years when emplyee moves in use market value INCLUDE any capital movements BEFORE START OF TAX YEAR!!!
Official rate 2% (given)

note any extras eg decoration repairs cleaning heating etc are benefit=cost ot employer-contributions from employee
rent is deducted from benefit

Question 27

Car benefit calculations.(4)

Answer 27

-manufacturers list price*CO2 emissions %
-Employee contributions on private use is deducted, NO benefit for genuine pool cars
-Manufacturer list price=optional extras-contributions by employee UP to 5k
-CO2 emissions: from tax tables, round down to nearest 5 at 1% for each 5 above 75…+4% IF DIESEL not meet RDE2…CAP AT 37% in all cases

(6/4/20 from)

REMEMBER FLAT RATE CHARGED IN EMPLOYER PAYS PRIVATE FUEL EVEN IF EMPLOYEE PAYS SOME-currentl at 24k

REMEMBER TO TIME APPORTION!

Question 28

Which of the following expenses are allowable?

Decorating a sole trader’s office

Parking fine incurred by a sole trader’s employee

Electricity bill for a sole trader’s factory

Fork lift truck for a sole trader’s warehouse

Meal to entertain a customer from Italy

Answer 28

Decorating a sole trader’s office

Parking fine incurred by a sole trader’s employee

Electricity bill for a sole trader’s factory

Question 29

Which one of the following expenses is allowable?

Gift of £40 to Oxfam (a national charity)

Gift of £40 to the local animal hospital

Gift of £40 to the Green Party

Gift of £40 of department store vouchers to a loyal customer on her 40th birthday

Answer 29

Gift of £40 to the local animal hospital

Note:
-Relief for donations to national charities is available through gift aid not trading income.
-Political donations are not allowable.
-Gifts to customers are disallowable unless the item:
cost < £50 per recipient per year, and
is not food, drink, tobacco or vouchers exchangeable for goods, and
carries a conspicuous advertisement for the business.

Question 30

How do you adjust profits for tax?

Answer 30

Step 1:Adjust acc profits
Step 2: deduct capital allowances for that accounting period
Step 3: Consider which tax year to tax this accounting period in=basis periods

Current year basis therefore profits taxed are those 12 month of accounting years ending in that tax year

Question 31

How to adjust accounting profit?

Answer 31

Start with P&L net profit

Add disallowable expenditure and any taxable trading income not on accounts e.g. removal of goods for personal use

Less allowable expenditure e.g. capital allowances or business expenses borne personally by the owner and any non-trading income on accounts which is not taxable e.g. income taxed elsewhere such as chargeable gains, rental or savings income
e.g. exempt income such as exempt capital gains

Question 32

How to treat goods removed by owner for personal use in tax computation?(3)

Answer 32

It is taxable trading income however what we add depends on whether an accounting record has been made
If it has e.g cost removed from purchases then add back the profit element
If it hasn’t e.g. still inc in purchases then add back the selling price

Question 33

How to determine if expenditure is disallowable and trading?(2)

Answer 33

Too remote from purpose of trade or has a dual purpose*though a trade off between the two can be allowed eg only taxed on some

Question 34

What is an appropriation?

Answer 34

Withdrawal of business funds that are disallowable expenses eg.owner salary, drawings or excess of any unreasonable payments to family members

Question 35

How do you account for remuneration in trading income?

Answer 35

Most payments to staff are allowable eg wages bonuses redundancies and cost of providing benefits, pensions (note these are allowed when paid rather than on accrual basis)

If earnings are not paid within 9 months of the year end then they are deductible in the period in which they are paid

Also account for appropriations.

Question 36

How do you account for impaired debts in trading income?

Answer 36

Movements in specific provisions are allowable but general are disallowable
Write off of trade debts is allowable but non-trade disallowable so needs adding back (unless already included!)

Question 37

How do you account for capital expenditure for trading income?

Answer 37

Some may be allowable for CGT but not for trading
Repairs and maintenance are allowable, even if element of improvement due to improved industry standards.

Question 38

How do you account for subscriptions and donations in trading income?

Answer 38

Trade or professional association subs are usually allowables as they are typically for trade purposes
Donations depend on nature of organisation eg small donations to charities are allowable as are stock or asset gifts, national charities are disallowable but tax relief may be available under gift aid
subs and donations to political parties not allowed

Question 39

How do you account for entertaining and gifts in trading income?

Answer 39

client dis employee allowed deduction on profit for tax purposes
gift of trade samples to customers is allowable other gifts to customers are not unless <50 pa per recipient, not food,drink, tobacco or vouchers for goods, or carry conspicuos (clear) advertisement for business
gifts to employees are allowed with no limit (unlike benefits in kind)-though may be subject to income tax charge

Question 40

How do you account for legal/professional charges in trading income?(2)

Answer 40

allowable if for purposes of trade, if for capital exp typically disallowable execeptions to this inc: fees/costs of obtaining long term finance, registering for patents or renewing a short term lease (sub 50 years) HOWEVER initial lease legal fees are not

Question 41

How do you account for car leasing and rental costs in trading income?

Answer 41

costs for hiring, renting or retiring ppe are allowable but a flat rate disallowance of 15% of car lease payments where CO2 is above 50g/km
also disallowance for any private use

Note: If you have leased a car with private its easier to work out allowable expense first being 85% of business proportion of the lease cost and then disallowance is the remainder

Question 42

When does the flat rate disallowance of car lease expenses come into effect?

Answer 42

For car with emissions over 50g/km

Question 43

Capital expenses are typically disallowable however exceptions to this include…(3)

Answer 43

-fees/costs of obtaining long term finance
-registering for patents
-renewing a short term lease (sub 50 years) HOWEVER initial lease legal fees are not

Question 44

How do you account for other income in trading income?(4)

Answer 44

fines generally disallowable but parking fines incurred by an employee (not owner) whilst on work business are allowable
interest on borrowings for trade (eg overdraft in business account) is allowable
interest on late tax is disallowable
IDE of VAT is allowable if relating to allowable expenditure

Question 45

How should you account for disallowable expenses when they have or have not been factored into calculating profit?(2)

Answer 45

If they havent been included then we don’t need to do anything as they are already essentially “added back” to the net profit figure given
If they have been accounted for/recorded they need adding back as of course they are disallowable expenses therefore need taxing.

Question 46

Jayne overpaid income tax and received interest in this, what would this contribute to taxable income?

Answer 46

It is exempt so would not be table income

Question 47

What are capital allowances?

Answer 47

Tax equivalent of depreciation

Question 48

What are 4 types of capital allowances?

Answer 48

Writing down allowance like depn-charged on reducing balance basis
Annual investment allowance-set available amount on certain assets in the year in which they are purchased
First year allowance-extra allowance on aquisition mainly to stimulate purchase of certain ppe eg better environmental options
Balancing adjustments-equivalent to a profit or loss on disposal

Question 49

When may a balancing charge arise? Balancing allowance?(2)

Answer 49

Balancing charge applied if an asset is sold for more than its tax carrying value
Allowance if sold for less than tax cv

Question 50

What assets qualify for capital allowances?(3)

Answer 50

Plant and machinery ie assets with which the business operates rather than in which the business operates in eg environment
From case law building alterations incidental to plant installation and machinery, licences to use comp software also qualify
commercial structures and buildings qualify for SBA but this is non examinable

Question 51

Written down allowance.(WDA)(2)

Answer 51

Given on balance of the main pool at the end of the period of account
WDA claimed a CA and deducted from pool, remaining pool then brought forward as TWDV for next year

Question 52

Annual Investment Allowance(AIA)(3)

Answer 52

Offers tax relief at 100% up to a max of 200k
Can be used against any assets allocated to the main pool excluding assets qualifying for 100% FYA and cars
Unused AIA cannot be carried forward and if expenditure exceeds availabe AIA then the balance eligible is 18% WDA by transferring the balance to the main pool before calculating WDA for the period

Question 53

Time apportioning capital allowances.(2)

Answer 53

WDA and AIA are time apportioned based on accounting period not referencing to ownership
Remember AIA is on 100% of asset the time apportioning relates to the cap 200k
FYAs are never time apportioned, always full allowance

Question 54

How to deal with disposals from main pool for capital allowances.(3)

Answer 54

Before giving WDA deduct the lower of the disposal proceeds or original cost
If the item is not sold proceeds are assumed to be:
market value on date of transfer (if moved to owner private use)
scrap value/compensation if asset is scrapped or destroyed
If the asset being disposed qualified for AIA or FYA in year of acquisition the deduction is made from the main pool or a single asset pool

Question 55

Small pool WDA.(3)

Answer 55

If the main pool balance on which WDA is to be claimed is less than 1k the whole amount can be claimed
NOT available for private assets
And the 1k limit is time apportioned for periods not equal to 12 months (not given in tax tables for exam!)

Question 56

Calculating private use asset capital allowance.(1)

Answer 56

-set up a seperate column per asset and calc as normal only for business portion

Question 57

How to calculate capital allowances on cessation of trade.(2)

Answer 57

No FYA WDA or AIA are available
add any additions, deduct any disposals at market value at date it leaves the business

Question 58

Capital expenditure is not allowable in computing trading profits but will always result in capital allowances

Answer 58

incorrect, usually but not always eg cost of shares

Question 59

Which of the following assets will not be in a single asset pool for capital allowance purposes?
-Computer costing £10,000 with 30% private use by the owner of the business
-Car with emissions of 45 g/km costing £14,000 on 10 June 2021 with 20% private use by one of the employees
-Car with emissions of 45 g/km costing £13,000 on 1 January 2022 with 35% private use by the owner of the business
-Delivery van costing £15,000 with 10% private use by the owner of the busines

Answer 59

Car with emissions of 45 g/km costing £14,000 on 10 June 2021 with 20% private use by one of the employees

Question 60

3 types of basis of assessment rules.(3)

Answer 60

-Current year basis e.g taxed in year AC period ends eg AC accounts end 30th april 2020 will be taxed in the tax year 2020/21
-Opening year rules (first tax year and second onwards)
-Cessation of trade rules

Question 61

Describe how you calculate first tax year basis.(2)

Answer 61

Goes from time apportioned from start of trade to the start of the new tax year but may need time apportioning!! Called actual basis!

E.g. if start trade 1st July 20X1 would be 9 months till 31st March X2 (go off nearest month and this is closest to 5th April)

Question 62

Describe how you would calculate second tax year onwards?(2)

Answer 62

-First need to decide if there is a period of accounting (POA) ending in 2nd tax year, if not tax ACTUAL TAX YEAR
-If there is HOW LONG?
If EXACTLY 12 months tax that period of account
If LESS than 12 tax first 12 months of trading e.g. from date of commencement
If MORE than 12 tax last 12 in the long POA

Golden rule is that HMRC tax 12 months of profits

Question 63

How do basis period rules apply to a partner?

Answer 63

Individual for each partner so would be different for ongoing ceasing and joining partners thus basis rules would differ.

Question 64

What tax return dates should you use for partnerships?

Answer 64

Same as given self-assessment dates in tax tables as are the same.

Question 65

What types of national insurance do self-employed pay?(4)

Answer 65

class 2 and class 4 aged 16 to retirement (65 age in exam)

class 2 is payable by 31 jan following end of the tax year at flat rate of 3.05/week if annual small profits threshold of 6515 is exceeded
class 4 is payable via payment on account/balancing payment with income tax at 9% on profits between 9568-50270 and 2% thereafter

A trader should register with HMRC for NIC and income by 31 jan following the end of the tax year in which trade commences

Remember to round to the nearest pound at each stage in workings

Question 66

When do the self-employed need to make payments on account? When do they not?(4)

Answer 66

-Class 4 NICs and income tax they do//Class 2 NICs or CGT no
-Due dates are: 31st Jan in tax year, 2nd 31 july following the end of the tax year
-Each is calculated based on 50% of the previous year’s tax payable by self-assessment
Exclusions If amount is less than 1k or less than 20% total income tax and class 4 liability
-***Basically have income liability from previous year subtract PAYE add class 4 NICs and split

Question 67

What is a balancing payment for?(2)

Answer 67

unpaid income tax or self-employed NICs, and CGT

basically add income tax liability from previous year less tax from source eg PAYE add any NICs and CGT to give TOTAL tax liability AND THEN remove any payments on account (from class 4 NICs and income tax) in PREVIOUS year and result will be the balancing payment

Question 68

How to deal with NIC late balancing payments?(2)

Answer 68

PENALTIES ONLY ON POAs NOT BALANCING CHARGE
A penalty may be charged and depend on length of delay and amount unpaid at 5% and additional 5% after 6 months
-Also late payment interest for unpaid tax and penalties (running from due date to date paid HMRC DOES NOT count day day or day of payment in this)
payment is interest ratedays/365amountoftax

Question 69

Class 1 NICs.(5)

Answer 69

-Primary are employee class1 (paid 16 to retirement), secondary are employer class1s(16+)
-Charged on cash earnings (before deductions) plus vouchers exchangeable for cash, goods or services and calculated each time employee is paid
-primary calculated at 12% between 184 and 967/week (797 and 4189/month) and 2% after, secondary 13.8% on earnings over 170/week or 737/month
-NOTE secondary 0% and then is 13.8% for 967/week (4189/month) for under 21 or apprentices under 25
-due date 19th of each month or 22nd for electronic payment, (employers with 250+ employees must be electronic whilst others have the option) CAN be paid quarterly if average month total PAYE (income tax and NICs) less than or equal to 1500

Question 70

What are the due dates for Class1 NICs?(2)NOT IN TABLES NEED TO LEARN!

Answer 70

Due date 19th of each month or 22nd for electronic payment, (employers with 250+ employees must be electronic whilst others have the option)
CAN be paid quarterly if average month total PAYE (income tax and NICs) less than or equal to 1500

Question 71

What is PAYE?

Answer 71

Income tax and NICs

Question 72

When may annual limits be used for PRIMARY NICs?Wb secondary?

Answer 72

For class 1 primary NICs IF employee paid evenly throughout the year (if any bonuses etc must be done monthly/quarterly)
Annual limits are 12% between 9568-50270 pa and 2% after

Can be used regardless for secondary at 13.8% on above 50270 pa for under 21 and apprentices under 25, or over 8840pa for others

Question 73

Employer allowance. (2)

Answer 73

APPLY AFTER CALC!!!
4k pa per employer NOT employee-if liability is less no NICs are paid
Not available for companies with 1 director and no other employees or those with class 1 secondaries greater than or equal to 100k in previous tax year
Include in exam unless told otherwise or not available

Question 74

Class 1A NICs.(3)

Answer 74

-Class 1a only paid by employer on value of benefits exc voucherss exchangeable for cash, goods or services (liable to class 1)-charged at 13.8% of value of assessable benefit-calculated same as for income tax
-no employment allowance allowed
paid annually by 19th July (22nd electronic) following end of the year

Question 75

Alina runs a decorating business as a sole trader. She employs one assistant. For the tax year 2021/22 she pays her assistant a salary of £15,000 and provides taxable benefits valued at £500.

A NIC employment allowance of -???? -can be claimed by Alina in the tax year 2021/22.

Answer 75

850
The employment allowance can only be set against the employer’s class 1 secondary NIC liability. It is not available against the employee’s class 1 primary NICs, nor against the employer’s class 1A liability on taxable benefits.

(£15,000 - £8,840)*13.8%=850
Cant claim allowance against tax not payable therefore only 850 can be claimed.

Question 76

Who is a chargeable person?

Answer 76

Individual or companies but! companies pay corporation tax on their gains NOT CGT

Question 77

Define CGT scope.(1)

Answer 77

Charged on gains arising on chargeable disposals of chargeable assets by chargeable persons

Question 78

Define chargeable disposal scope.(3)

Answer 78

Include: the sale or gift of whole or part of an asset/loss or destruction of an asset
Do not include: gifts to charities,disposals on death, disposals between spouses or civil partners
-For disposals under contract date of disposal is: when the contract is made or if conditional is the date all conditions are met.

Question 79

Define chargeable assets.(7)

Answer 79

All assets are chargeable unless specifically exempted, such as:
-cash
-motor cars inc vintage
-gilt edged securities and qualifying corporate bonds
-national savings certificates/premium bonds
-prizes and bettings
-assets in an ISA
-certain chattels

Note annual exempt up to 12300 which cannot be rolled forward

Question 80

Rate of capital gains.(1)

Answer 80

CGT depends on income amount for higher/additional CGT is 20% for basic CGT is 10%

Question 81

Payment of CGT.(1)

Answer 81

Must be a self-assessment and payment both due by 31st Jan following the end of the tax year

Question 82

How do you calculate CGT liability?(2)

Answer 82

Chargeable gains-12300(annual exempt amount)=taxable gains

take gains-taxable income to determine which band to charge to e.g. gain 33900, taxable income 27855 then 37700-27855=98450.1 and 33900-12300=21600 therefore 21600-9845=11750.2

Question 83

Give examples of allowable selling costs.(3)

Answer 83

-Allowable selling costs are permitted to be deducted from gross sale proceeds.
-They can include expenses such as advertising costs, auctioneer’s or estate agent’s fees, or other legal costs incurred in connection with the sale.

Question 84

Disposal consideration.(1)

Answer 84

Assuming the disposal was by way of an arm’s length sale, then the disposal proceeds will be the actual sum received for the sale of the asset.

Market value must, however, be used to replace actual proceeds if the disposal was a gift, in which case there will be no actual disposal proceeds.

Question 85

Acquisition cost.(1)

Answer 85

Cost of acquisition is generally the amount paid for the asset that is now being disposed of.

However:
If the asset was received by way of a gift, then the acquisition cost will be the market value at the date it was gifted
If the asset was inherited, the acquisition cost will be the market value at the date of death of the person from whom it was inherited (also known as the probate value).

Question 86

Incidental costs in aquisition.(1)

Answer 86

Incidental costs of acquisition are further amounts of expenditure incurred at the time the asset was acquired, for example legal fees, estate agent’s fees, surveyor’s fees, stamp duty or other associated legal fees.

This gets added to the cost of acquisition since they form part of the allowable expenditure on the asset that is now being disposed of.

Question 87

Enhancement expenditure.(1)

Answer 87

Enhancement expenditure is the cost of subsequent improvements to the asset after it was acquired (for example, the cost of an extension to a building) and any associated professional or legal fees (for example, an architect’s fees).

Enhancement expenditure does not include the cost of ongoing repairs, since this just represents maintenance of the asset in its current state and condition, rather than any significant improvement or enhancement.

Question 88

What is a chattel?(3)

Answer 88

-Tangible moveable property e.g. a picture or table
Note must be moveable hence buildings are not chattels, tangible therefore shares are not chattels
-Two types wasting and non wasting
-wasting have expected life not exceeding 50 years year as non-wasting is more, wasting are exempt from CGT non-wasting have special rules
examples of wasting include caravans boats animals plant and machinery, non-wasting antiques jewellery and paintings

Question 89

NEED TO LEARN!!
Non-wasting chattel rules.(4)

Answer 89

gross proceeds <=6k cost<=6k—->exempt

gross proceeds>6k cost>6k—->taxed as usual

gross proceeds <=6k cost>6k—>marginal loss is restricted: gross proceeds deemed to be 6k

gross proceeds>6k cost<=6k marginal gain is restricted to lower of: normal gain OR (5/3*grossproceeds-6k)-essentially a limit on marginal gain NOT used for deductions

NOTE: Gross are sales proceeds before deducting any incidental costs of disposal whilst cost is original acquisition cost

Question 90

Sets of non-wasting chattels.(2)

Answer 90

Group of similar complementary items worth more together than seperate, where only part of the set is disposed of the acquisition cost needs divided as: cost*A/(A+B) where A=disposal B=retained MARKET VALUE

Same formula used for large assets if broken up and sold in parts eg part of land

Question 91

Disposal or sets to the same or connected persons.(3)

Answer 91

-Special rules apply if two or more assets forming part of a set which were owned by the same person are disposed of to the same person or those connected with one another
-Disposals treat as one for 6k rule and restriction on marginal gains tax (5/3 rule)
-If disposals were made in diff tax years a gain is calculated on the total figures and is then apportioned to each individual disposal based on sale proceeds.

treat as same as in cost of the pair

Question 92

ICAEW Fundamental principles.(6)

Answer 92

-Integrity
-Objectivity
-Confidentiality
-Professional competence and due care
-Professional behaviour
-Professional scepticism

Question 93

Tax avoidance vs Tax evasion.(4)

Answer 93

-Tax avoidance is using any legal method to reduce an entity’s tax burden, even if the method is not following the intent of the law eg artificially using foreign jurisdictions with lower tax rates
-Tax avoidance not always effective-promoters of TA schemes are now required to disclose details to HMRC to close loopholes quickly and courts may disregard elements of transactions that have no commerical purpose ie where they have been designed with purpose of avoiding tax,
-the general anti-abuse rule (GAAR) enables HMRC to challenge abusive tax avoidance arrangements
-TA still seen as morally questionable refer to PCRT
Tax planning is a form of TA used legally and as intended to minimise tax but pay the correct amount eg claiming marriage allowance
-Tax evasion is illegally seeking to pay less tax than is due by deliberate misleading and carries criminal prosecution main forms are suppression of info and submitting false info

Question 94

Money laundering.(3)

Answer 94

A person is engaged in money laundering if:
-conceal disguise convert transfer or removes (from the UK) criminal property (including proceeds of tax evasion)
-enters into or becomes concerned about and arrangement he/she knows or suspects facilitates the acquisition, retention use or control of criminal property (inc tax evasion proceeds)
-acquires uses or has possession of criminal property inc tax evasion proceeds

Question 95

Which two money laundering related acts are accountants required to comply with.(2)

Answer 95

-Proceeds of Crime Act 2002 (POCA) as amended by Serious Organised Crime and Police Act 2005 (SOCPA)
-Money Laundering Regulations 2017
ICAEW supports ESCBs economic crime plan.

Question 96

Procedures for money laundering.(5)

Answer 96

Register with an appropriate supervisory body
Appoint an MLRO
Establish internal procedures to reduce risk
Verify identity of clients and retain relevant documents for 5 years are termination of client relationship
Maintain records of all transactions undertaken for each client for 5 years after completion of transactions

Question 97

Penalties for money-laundering.(3)

Answer 97

up to 14 years for main money laundering offences
up to 5 for failure to report an offence
up to 2 years for tipping off

Question 98

James started a Business 1st October 2021. Which would not result in overlapping profits?
-First accounts are year ended 30 September 2022 with future accounts to 30 September
-First accounts are six months ended 5 April 2022 with future accounts to 5 April
-First accounts are three months ended 31 December 2021 with future accounts to 31 December
-First accounts are four months ended 31 January 2022 with future acco

Answer 98

First accounts are six months ended 5 April 2022 with future accounts to 5 April

Question 99

The Quack partnership has recently disposed of an office building. The office building was owned1 jointly by all the partners. The office building was sold to a property developer.
Who is liable to pay any capital gains tax due on the disposal of the office building?
-Partnership
-Partners jointly
-Property developer
-Partners individually

Answer 99

Partners individually
The partnership is not taxable in its own right; rather it is an amalgamation of individuals effectively taxed as sole traders. Neither are partners taxed jointly. Every individual is liable to capital gains tax independently. As the asset is owned by all the partners, each partner must declare their share of any gain on their own self-assessment return

Question 100

True or false/
Wasting chattels bought and sold for more than £6,000 are chargeable to CGT

Answer 100

False.

Wasting chattels are always exempt from CGT. The £6,000 rule applies to non-wasting chattels.

Question 101

What CGT is a rare collection of snakes worth £320,000 subject to.(1)

Answer 101

exempt-nonwasting chattels are always exempt.

Question 102

Which of the following is not a chargeable disposal made by Gordon?
-The sale of a building used by Gordon’s business, to a third party
-The gift of shares to Gordon’s son
-The loss of a painting valued at £50,000 during a fire at Gordon’s houseC
-The gift of an antique table valued at £40,000 to Gordon’s daughter on his death

Answer 102

-The gift of an antique table valued at £40,000 to Gordon’s daughter on his death

Question 103

Which two of the following are exempt wasting chattels for the purposes of capital gains tax?
-Office furniture, purchased for use only in Jack’s business office on which he claims capital allowances
-A racehorse purchased as an investment by Max
-Goodwill of a computer manufacturing business with an expected life of 20 years
-A caravan, purchased by David for use on family holidays

Answer 103

A racehorse purchased as an investment by Max
A caravan, purchased by David for use on family holidays
An asset used only for business purposes and eligible for capital allowances is specifically treated as a non-wasting chattel.
Goodwill is not a chattel as it is not tangible moveable property.

Question 104

Which of the following may result in a chargeable gain?
-A gift of a painting worth £250,000 to a local art gallery
-A sale of shares in Beagle plc by the RSPCA, a registered charity
-A gift of antique jewellery worth £25,000 by Robert, to his daughter as a wedding gift
-James sold gilt edged securities valued at £40,000 to his friend Arthur for £27,000

Answer 104

A gift of antique jewellery worth £25,000 by Robert, to his daughter as a wedding gift

Disposal to an art gallery is an exempt disposal.
A registered charity is an exempt person.
Gilt-edged securities are an exempt asset.

Question 105

Joshua has draft taxable gains of £30,500 for 2021/22 including the two items below.
Select how Joshua’s draft taxable gains will be affected by the correct treatment of each item.
-A gain of £4,200 on the sale of his 10-year-old racehorse.
-Auctioneer’s fees of £500 have been deducted in arriving at the £13,400 gain on sale of an antique sculpture at an auction

Answer 105

-Decrease
The gain arising on the sale of the racehorse is exempt.

-No effect

Question 106

Which of the following may result in a chargeable gain?
Sale of a vintage car for £20,000 which originally cost £12,000A
Gift of cash of £50,000 from Jamil to his daughter to use as a house depositB
Sale for £5,000 of the goodwill of a trading business by Jack
Gift of premium bonds by Lisa to her daughter as a wedding gift

Answer 106

Sale for £5,000 of the goodwill of a trading business by Jack
Goodwill is not a chattel so not subject to the exemption where gross sales proceeds and cost are
less than £6,000.
Cash, cars and premium bonds are all exempt assets.

Question 107

Jenny owned a set of two antiques which cost her £4,000 in January 1990.
In September 2021, she sold one of the antiques to Helen for £7,000. The other antique was valued at £8,000 at this time.
In October 2021, she sold the other antique to Helen‘s wife, Shona, for £10,000.
Helen and Shona are connected persons for CGT purposes.

What is the cost to be used in the calculation of Jenny’s gain on disposal to Shona in October 2021?

Answer 107

£2,133
Cost for first disposal: £4,000 × £7,000/(£7,000 + £8,000) = £1,867
Cost for second disposal: £4,000 - £1,867 = £2,133

Question 108

Scope of corporation tax and periods of account.(1)

Answer 108

Paid by UK companies on worldwide income and accounting period gains
A company is resident in the UK if it is incorporated in the UK, or it is centrally managed and controlled in the UK

The total income and gains are known as taxable total profits (TTP)

Accounting periods cannot exceed 12 months if more it is split into 2 APs of first 12 months and then the remainder.

Question 109

How do trading income calculations differ for companies compared to sole trader/partnerships?(1)

Answer 109

Not necessary to make adjustments for appropriations and dividends paid are not allowable deductions from profit whilst received are exempt but may impact corp tax dates

Question 110

What is super-deduction?

Answer 110

130% on new unused machinery purchases by companies, assumed to be exercised, and not time apportioned like FYA

Question 111

UK property income.(1)

Answer 111

Rental income from UK properties is taxable on an accruals basis. Interest payable on a loan to acquire or improve property is not an allowable expense against property income.

Instead relief is given under ‘loan relationship’ rules.

Question 112

Loan relationships-interest income.(4)

Answer 112

-For companies all interest is taxed on accruals basis-used to determine whether interest is payable/receivable is classified as trading or non-trading
-If classed as trading it is allowable or taxable as part of trading income//if non-trading it is allowable or taxable as part of NTLR.
-Interest receivable (trading only is trade is lending money e.g. banks//non-trading any other interest receivable e.g. by trading companies on deposits or from investments in bonds or government stocks AND on repayments of corp tax (repayment interest)
-Interest payable (trading would be overdraft interest or payable on loans to purchase ppe AND on loans/debentures to fund daily operations)

Question 113

Augmented profits.(4)

Answer 113

-Used to determine when tax is due for payment
-TTP and exempt ABGH distributions (dividends received from other companies (UK and overseas). Dividends from 51% subsidiaries are not included
-Limit at 1.5m for accounting period, if shorter than 12m limit needs time apportioned, if profits exceed limit company classed as large and tax is payable by installments* if not needs to be one payment 9 months and a day after the end of an AP (found in tax tables)
-*UNLESS tax liability is less than or was not large in previous AP and less than or equal to 10m this year-this is scaled down for short APs and divided by the number of related 51% group companies at end of previous AP—NOT GIVEN IN TAX TABLES
If over 20m is very large companie which changes installment dates to 3 6 9 12

Question 114

Related 51% group companies.(3)

Answer 114

-Augmented profits is divided by number of related 51% group companies at the end of the previous AP. Related 51% group if:
one of the companies is under control of the other, or they are both under common control of another company
-Control in this case mean directly or indirectly owning or being eligible to more than 50% of the company’s issued ordinary shares, voting power, distributable income or assets on wind up
-Dividends from 51% subsidiaries are not exempt ABGH but includes UK and overseas

Question 115

W Ltd owns X Ltd (40%), Y Ltd (100%) and Z Ltd (80%). All countries are resident in UK except Y Ltd. Z Ltd is dormant and X Ltd was bought part way through the year.

How many 51% group companies are there for tax purposes?

Answer 115

Only 2 W Ltd and Y Ltd

Z Ltd is dormant therefore not included

X Ltd is only 40% so is not included, even if not they would not be until the next AP as control would be assumed part way through the year

Question 116

Submission of a corporate tax return. IMPORTANT!.(4)

Answer 116

-Must be within 3 months of first AP stating when trade began, HMRC will issue a tax return request shortly after accounting year end and if not the company must notify HMRC within 12 months of period edn that is has TTP or will face a penalty
-Tax return is known as CT600 and must be submitted online as well as pay electronically, companies cannot ask HMRC to calculate their tax and must submit their tax computations and accounts supporting in the ‘inline extensible business reporting language (iXBRL)
-HMRC has the right to amend obvious errors within 9 months of filing date, and can conduct an inquiry though must notify of intention, if late this is a quarter day following th 12 month anniversary of the actual filing date (12 months after the filing date if on time)
-The company has the right to amend the return for any reason within 12 months of the due filing date or make a claim for overpayment relief within 4 years of the end AP

Question 117

NOT in tax tables!! Max time information must be retained for:
Corporation tax and VAT
-Income tax and CGT-business records
-Income tax and CGT-personal records

Answer 117

-6 years from AP end and 6 years
-5 years from 31st Jan the following tax year
-1 year from 31st Jan the following tax year
-6 years

Max of 3k per tax year or AP can be charged for failure but can be reduced by HMRC

Question 118

Duties of senior accounting officers.(2)

Answer 118

-The designated senior accounting officer (SAO) of a large company is personally responsible for certifying each year that the company’s accounting systems can produce accurate tax information (large as in over 200m turnover OR gross assets in excess of 2 billion)
-The name must be notified to HMRC otherwise 5k penalty, the SAO may also be charged a 5k penalty fir failure to provide an accurate annual certificate or establish adequate AC system

Question 119

Repayment interest and late corp tax interest.(2)

Answer 119

Repayment interest is paid by HMRC on any overpayments and is taxable as non-trading loan relationship income: it runs from the later of the due date, date of actual payment to date of repayment
Interest paid on late corp is automatically charged but deductible as a non-trading loan relationship expense and runs from date due to date of payment inclusive

Question 120

What happens if there is an error in VAT ie supplier doesnt charge it?

Answer 120

Then sales are treat as being inclusive of VAT hence cost to business

Question 121

Quick fractions for inclusive VAT

Answer 121

1/6 for 20%
1/21 for 5% reduced rate

Question 122

Difference between 0 rate and exempt

Answer 122

exempt cannot have VAT costs claimed back but 0% exempt can

Question 123

What 2 tests are used to determine compulsory registration?

Answer 123

Historic-
A trader must register for VAT if, at the end of a calendar month, taxable supplies exceed £85,000 for the last 12 months, unless taxable supplies for the next 12 months are expected to be less than £83,000. Both of these thresholds are given in your tax tables.
Registration will be effective from the end of the next month, and the trader must notify HMRC of the need to register within 30 days of the end of the month in which the threshold is exceeded.
Future prospects-

Future prospects test
A trader must register for VAT if there is an expectation that taxable supplies will exceed £85,000 during the next 30 days. The trader must notify HMRC of the need to register within 30 days of the start of the 30-day period.
Registration will be effective from the start of the 30-day period; i.e. the trader must start charging the VAT from the date it is realised that the test has been met.

Question 124

Basic tax point.(3)

Answer 124

The basic tax point for goods sold under normal terms is the date the goods are despatched.

The basic tax point for a service is the date on which the service is performed.

The basic tax point for goods sold on sale or return is the earlier of the date the goods are adopted by the customer and 12 months after the date of despatch.

Question 125

Actual tax point.(3)

Answer 125

If payment is before despatch, the tax point moves to the actual tax point, which is the date payment is received.

The invoice date will be the actual tax point if the invoice is issued before the basic tax point or within 14 days after the basic tax point.

Due to this second rule, the tax point for most business expenses is usually the invoice date.

Question 126

Carrie is a solicitor. On 14 November she commenced preparing a contract for a client and finished this work on 2 December. She issued an invoice to the client on 17 December and received payment on 28 December.

What is the tax point date in respect of these services?

Answer 126

The basic tax point for services is when the service is performed. This is taken to be the date that all work has been completed except for invoicing. In this case Carrie completed the work on 2 December, so this is the basic tax point.

The invoice was issued more than 14 days later, so the 14 day rule does not apply.

Note actual tax point would be invoice day if within 14 days

Question 127

Goods taken for own use in VAT

Answer 127

If a sole trader takes goods out of the business for his or her own use, this is a deemed supply on which the sole trader must account for VAT.

Question 128

Gift of goods in VAT

Answer 128

If goods are gifted, this is a deemed supply on which the trader must account for VAT.

Question 129

Output VAT in discounted sales

Answer 129

VAT is always calculated on the amount the customer eventually pays, so if a prompt payment discount is offered, the VAT charged on the supply will vary according to whether or not the prompt payment discount is taken.

Question 130

Private fuel for employees in VAT

Answer 130

If the business buys diesel or petrol, some of which is used for private mileage by its employees, then there is a deemed supply on which the business must account for VAT.

Question 131

Bad debt relief.(3)

Answer 131

In sellers books
Must be at least 6 months overdue
Must be claimed before 4 years of due date.

Allows output VAT to be input and provides relief on bad debts (as tax points are based on mark of payment may be down as being paid by customer when they fail to hence leaving business out of pocket)

Question 132

Pre-registration VAT recovery requirements.(2)

Answer 132

must be acquired for business purposes and still held at registration for services must have been supplied for business purposes
for goods must be claimed within 4 years and for services must be 6 months.

Question 133

What are irrecoverable input VAT goods and services.(4)

Answer 133

-cars (unless 100% for business eg driving school)
-non-business items
-VAT items for which no VAT receipt is held
-business entertaining (two exceptions: staff entertaining, entertaining foreign customers)

Question 134

Which of the following reasons would be a valid reason for a business making taxable supplies choosing to voluntarily register for VAT?

Members of the public would be able to buy the goods more cheaply.
It would provide administrative simplicity for the business.
Preparation of VAT returns would be optional.
It could recover input VAT at an earlier stage

Answer 134

By registering for VAT the business can begin to recover input VAT on its purchases at an earlier stage.

Members of the public are likely to see an increase in selling prices rather than a decrease since the business would now have to charge 20% VAT on its prices.

If a business is VAT registered it has to comply with all the VAT administration rules at an earlier stage – this is likely to increase administrative effort rather than reduce it.

Once a business has registered for VAT, VAT returns are compulsory – they are not optional.

Available Answers
It could recover input VAT at an earlier stage (2 Marks)

Question 135

Farida started trading on 1 July 2020. Her taxable supplies for the first six months were £7,800 each month. Her taxable supplies then increased to £9,600 each month.

The annual registration threshold is £85,000.

Which TWO of the following statements are correct?

Farida must notify HMRC by 30 April 2021 that she has exceeded the registration threshold.
Farida must notify HMRC by 30 May 2021 that she has exceeded the registration threshold.
Farida will be registered with effect from 1 May 2021.
Farida will be registered with effect from 1 June 2021.

Answer 135

Feedback:
Farida will exceed the registration threshold on 30 April 2021 when her supplies in the 10 months since she commenced trading are £85,200. She must notify HMRC that she has exceeded the registration threshold within 30 days (i.e. by 30 May 2021) and will be registered from the start of the following month (i.e. 1 June 2021).

Available Answers
Farida must notify HMRC by 30 May 2021 that she has exceeded the registration threshold. (Correct)
Farida will be registered with effect from 1 June 2021. (Correct)

Question 136

Correct or incorrect?

When a business ceases to trade, HMRC must be notified within 30 days and VAT deregistration is effective from the end of that 30-day period.

Answer 136

Incorrect
Where a business ceases to trade HMRC must be notified within 30 days. However, deregistration is effective from the day the taxable supplies cease, not at the end of the 30 day period.

Question 137

Making Tax Digital for Business (MTDfB) threshold.(1)

Answer 137

85k though smaller may use voluntarily
Has to be returned quarterly on software compatible and able to take straight from business records has to be kept for 6 years

Question 138

Making Tax Digital for Business (MTDfB) threshold.(1)

Answer 138

85k though smaller may use voluntarily
Has to be returned quarterly on software compatible and able to take straight from business records has to be kept for 6 years

Question 139

Required content of a standard VAT invoice and what is not.(16)

Answer 139

Can be less detailed if less than 250 or modified for retail supplies over 250 but generally:
-can be issued electronically and copy must go to customer and retain seller
-requires invoice number (unique and follow on)
-contain name and business address of supplier
-VAT reg number of supplier
-tax point date (if not invoice date)
-name and business address of customer
-description of type of supply
-description of goods/services
-price exc vat
-rate of tax for each set of goods
-amount payable exc vat
-cash discounts if applicable
-amount of VAT and must include none if zero-rated

DOES NOT NEED
-date of order
-customer VAT registration or order number
-method of delivery

Question 140

VAT errors.(2)

Answer 140

Small errors are defined by the limit which is the higher of either 10k or 1% turnover exc VAT capped at 50k (ie if this is more than 10k this is now the limit in which the error is judged against-only small if it is below this limit)
Reporting in next period is fine provided was not careless or deliberate
Those which exceed or were deliberate require reporting in a form (VAT652)-penalties apply

Question 141

Who are substantial traders and what must they do?(3)

Answer 141

Any with over 2.3m VAT liability
Have to make payments on account these are 1/24th of annual liability at the end of months 2 and 3 of every quarter
Any additional is due one month after quarter end.

Question 142

Interest on overpaid tax.(2)

Answer 142

If an error made by HMRC has caused:

output VAT to be overpaid, or
input VAT to be under claimed
a trader will receive repayment interest from HMRC. You will be given the applicable interest rate in the question if needed.

Interest runs from the later of:

the date of payment to HMRC, and
the due date for payment,
up to the date of repayment.

Question 143

Interest on unpaid VAT.(2)

Answer 143

Interest on unpaid VAT
A trader may be charged interest if:

HMRC raises an assessment for underpaid output VAT, or
HMRC raises an assessment for over claimed input VAT, or
the trader voluntarily discloses an error not classified as small.
You will be given the applicable interest rate in the question if needed.

Interest runs from the due date up to the date of payment.

Question 144

Return date info missing some…

Answer 144

A VAT return must be submitted electronically seven calendar days after the last day of the month
following the end of the return period, ie, 7 April 2022.
The partnership income tax return has to be submitted online by the later of 31 January following the
tax year or three months from receiving the return – in this case by 3 February 2023.
Eagle Ltd has one year from the end of the period of account to submit its corporation tax return, ie,
by 31 December 2022

Question 145

What are exempt ABGG distributions?

Answer 145

Dividends from other companies (UK and overseas). Dividends from 51% subsidiaries are not included

Question 146

What are augmented profits divided by

Answer 146

51% related companies

Question 147

What would stop a large company paying corp tax by instalment(the customary way for LARGE companies to do so)?NOT IN TABLES!!

Answer 147

If tax liability is less than 10k
If they weren’t a large company in prior year with AUGMENTED PROFITS less than or equal to 10m

Note the 10m is scaled for short AC periods and divided by the number of 51% company’s at the end of the PREVIOUS AC PERIOD

Question 148

When should a company inform HMRC of a corporate tax return?

Answer 148

Within 3 months of AC beginning

HMRC usually then submits a return request but if not a company must notify within 13 months of period end that it has taxable profits or will face a penalty

Question 149

How long does HMRC have right to amend obvious errors In corp tax?

Answer 149

Without 9 months of actual filing date for corp tax

Question 150

Keen Ltd leases two cars.

The first car has a list price of £21,000 and CO2 emissions of 87g/km. The annual lease charges are £4,700.

The second car has a list price of £27,000 and CO2 emissions of 49g/km. The annual lease charges are £5,200.

How much will be disallowed in the adjustment of profits computation?

Answer 150

Feedback:
15% of the lease charges are disallowed for a car with CO2 emissions in excess of 50g/km.

Therefore the disallowable amount = (£4,700 × 15%) = £705

If you picked £1,485 you disallowed 15% on both cars.

If you picked £4,700 you disallowed all of car 1.

If you picked £780 you disallowed 15% of car 2.

Available Answers
£705 (2 Marks)

Question 151

Gladstone Ltd has bank interest receivable of £53,000 for the year. The accounts show the following amounts in relation to interest payable:

£

On loan to acquire rental property 13,000
On loan to acquire factory premises 39,000
On loan to acquire subsidiary company 11,000

What is NTLR and trading deduction?(2)

Answer 151

Feedback:
Non-trading loan relationships = £53,000 – £13,000 – £11,000 = £29,000

Trading expenses = £39,000

For companies, all non-trading interest is included as non-trading loan relationships. Thus the interest on the loans to acquire a rental property and a subsidiary company are non-trading loan relationships. Unless a company’s trade is financial, all interest receivable is taxable as a non-trading loan relationship. Allowable interest for trading purposes is the loan used to purchase a factory.

Available Answers
Non-trading loan relationship income - £29,000 / Trading deduction - £39,000 (2 Marks)

Question 152

Brooke Ltd was incorporated on 1 May 2021. The directors opened an interest bearing bank account on 1 June 2021. On 1 July 2021, the company started to trade. It prepared its first set of accounts to 30 April 2022.

What is Brooke Ltd’s first accounting period for corporation tax purposes?

Answer 152

Feedback:
Tutorial note

An accounting period starts on the earlier of when a company starts to trade or obtains a taxable source of income.

The first accounting period therefore starts when the company opens the interest bearing bank account on 1 June 2021.

The date of incorporation is not relevant.

An accounting period (AP) ends on the earliest of 12 months after the beginning of the AP, the end of the company’s period of account and the date the company begins or ceases to trade. The first accounting period therefore ends when the company starts to trade.

Available Answers
1 June 2021 to 30 June 2021 (2 Marks)

Question 153

Flowertot plc has paid a dividend to its shareholders of £4,600 what should it do?

Answer 153

Flowertot plc has paid a dividend to its shareholders of £4,600:
Dividends paid to shareholders are an appropriation of profits and not an allowable deduction for trade purposes. As a result the dividend paid must be added back.

Question 154

In the year ended 31 December 2021 Almond Ltd had tax adjusted trading profits of £890,000. In addition, Almond Ltd had rented out surplus office space from 1 April 2021. The tenants paid the annual rent of £20,000 in advance on the 1 April 2021. In November 2021 Almond Ltd received £10,000 of dividends from an unrelated company.

What is the corporation tax liability of Almond Ltd for the year ended 31 December 2021? Give your answer to the nearest £.

Answer 154

890k+15k rental=905k*0.19 for corp tax percentage

Tutorial note

Property income is always taxable on the accruals basis for companies.

Dividends received are not taxable and should not be included in the calculation of the TTP.

Available Answers
171950.00 (2 Marks)

Question 155

Submarine Ltd has taxable total profits of £40,070,000 for the year ended 31 December 2021 and had taxable total profits of £35,050,000 in the previous year.

When is the first instalment of corporation tax for the year ended 31 December 2021 due?

Answer 155

Feedback:
Submarine Ltd is a very large company as its taxable total profits, and therefore augmented profits, are in excess of £20,000,000.

Instalments are due on the 14th day of months 3, 6, 9 and 12 of the accounting period for a very large company.

The accounting period starts 1 January 2021 so the instalments are due on 14 March 2021, 14 June 2021, 14 September 2021 and 14 December 2021.

If Submarine Ltd had only been a large company (rather than very large) the first of the four quarterly instalments would have been due on the 14th day of month 7, 14 July 2021.

If Submarine Ltd had been neither large nor very large, its corporation tax would have been due 9 months and 1 day after the end of the accounting period, 1 October 2022.
Available Answers
14 March 2021 (2 Marks)

Question 156

What can an employer use voluntary payroll for?

Answer 156

An employer can use voluntary payrolling to report all benefits excluding employer provided living
accommodation and beneficial loans.

Question 157

1. Leo included £550 relating to the write off of a loan to an employee who left the business some time ago what should he do to this?

Answer 157

Feedback: Leo included £550 relating to the write off of a loan to an employee who left the business some time ago:
The loan write off is not trade related as it is not part of its trade to lend money, and it is not part of employee remuneration. The loan write off cannot be taxed as a benefit on the employee as he left the business some time ago. As it would originally have been deducted in arriving at the draft taxable trading profits figure, it needs to be added back to eliminate it.

Question 158

True or false?

A trader who expects taxable supplies in the coming 12 months to be below the deregistration threshold must deregister for VAT

Answer 158

FALSE
If a trader believes the value of taxable supplies in the coming 12 months are going to be below the deregistration threshold, the trader MAY deregister for VAT.

Question 159

Which of the following statements about the annual accounting scheme is NOT true?

The VAT return under this scheme must be submitted within 2 months of the end of the year and the balancing payment is due at this point.
If the trader opts to make 9 equal monthly instalments, the first payment is due at the end of the fourth month, with no seven day extension.
A business using the scheme may also use the cash accounting scheme at the same time
A new business cannot join the scheme as instalments must be based on last year’s VAT liability

Answer 159

Feedback:
A new business will calculate its instalments based on an estimate of the VAT liability for the year.

Available Answers
A new business cannot join the scheme as instalments must be based on last year’s VAT liability (2 Marks)

Question 160

Mike is self-employed. He makes up his accounts to 31 March each year and for the year ended 31 March 2022, his taxable trading income is £60,000.

What are the total NICs payable by Mike for 2021/22?

Answer 160

Available Answers
£4,017 (2 Marks)

Question 161

Which of the following items should not be deducted when calculating a company’s adjusted trading profits?

-Dividends received
-Profit on sale of a capital asset
-Trade debts recovered
-Interest receivable

Answer 161

Feedback:
Trade debts recovered are taxable as trading income and therefore do not require adjusting in the adjustment of trading profits computation.

Dividends received are not taxable, profits on sales of capital assets are dealt with through the capital allowances computation and/or a chargeable gain, and interest receivable is taxed as interest income, therefore these all require adjusting in the trading profits computation.

Available Answers
Trade debts recovered (Correct)

Question 162

Bramley Ltd commenced trading on 1 January 2020 and prepared its first set of accounts for the 18 months to 30 June 2021.

Identify the company’s accounting period(s) for corporation tax purposes.

Answer 162

Feedback:
An accounting period cannot be longer than 12 months. If the period of account is longer than 12 months it must be divided into 2 accounting periods – the first one being 12 months long and the second one covering the remainder of the period of account.

Available Answers
1 January 2020 to 31 December 2020 and 1 January 2021 to 30 June 2021 (2 Marks)

Question 163

Which of the following types of expenditure will be treated as capital for tax purposes?

Answer 163

Feedback:
A replacement printer is an entirely new capital asset. Legal fees in relation to a capital purchase are also disallowed as capital. The other items are allowable revenue expenditure.

Available Answers
A replacement printer (Correct)
Legal fees in relation to the purchase of a new building (Correct)

Question 164

On 1 August 2021 Bedford Ltd purchased a car for £16,000 which had CO2 emissions of 40g/km.

What are the maximum amount of capital allowances available in relation to the car for the year ending 31 January 2022?

Answer 164

Feedback:
With CO2 emissions of 40g/km the car is entitled to a WDA of 18%: WDA = (16,000 x 18%) = £2,880

If you picked £16,000 you gave the car the FYA at 100%, but this is not a new zero emission car.

If you picked £8,000 you gave the car the AIA and time apportioned the AIA for the length of ownership in the period. Remember cars are not eligible for the AIA and the AIA and WDA are only time apportioned for the length of the accounting period not when the asset was purchased.

If you picked £1,440 you only gave the car six months of allowances. As noted above, the AIA and WDA are only time apportioned for the length of the accounting period not when the asset was purchased.

Available Answers
£2,880 (2 Marks)