Tax:Mock exam corrections

Question 1

Erin submitted her electronic self-assessment tax return for the tax year 2020/21 on 12 February 2022.

HMRC must give notice of an intention to conduct an enquiry by:

31 January 2023
12 February 2023
28 February 2023
30 April 2023

Answer 1

Feedback:
In this case the electronic return is submitted late and so notice must be given by the quarter day following the first anniversary of the submission date, i.e. 30 April 2023.

Available Answers
30 April 2023 (2 Marks)

Question 2

Freddy began trading in August 2021. Freddy’s profit for the period ended 31 March 2022 was £114,000. He has not informed HMRC that he has begun trading and has never been issued with nor completed a self assessment return.

What is the latest date by which Freddy should have contacted HMRC to obtain a self assessment return?

30 September 2021
5 October 2021
31 January 2022
5 October 2022

Answer 2

Feedback:
A taxpayer is required to notify HMRC of the need to complete a self assessment form by 5 October following the tax year in which a new source of income is acquired. As Freddy commenced to trade in 2021/22 he is required to notify by 5 October 2022.

Available Answers
5 October 2022 (2 Marks)

Question 3

On 29 March 2022 Aisha made a payment to HMRC of £3,800. The payment comprised:

£1,700 - the balancing payment for the tax year 2020/21
£2,100 - the first payment on account for tax year 2021/22.
What is the penalty due on Aisha’s late payment?

Answer 3

Feedback:
The correct answer is £85.

The penalty is imposed on the balancing payment as it is over 30 days late. The penalty is 5% of the unpaid tax.

5% × £1,700 = £85

A penalty is not due on a late payment on account.

Available Answers
85 (2 Marks)

Question 4

Merle is employed and has not been issued with a tax return in the past. She inherited a holiday cottage from her grandmother, which she began renting out on 1 June 2021. Tax due on the rental income for 2021/22 amounted to £5,000. Merle notified HMRC of the income and requested a paper tax return on 15 December 2022.

Merle was issued with a paper tax return on 1 January 2023, which she filed on 15 April 2023, paying all outstanding tax due.

What is the maximum penalty which Merle could be charged in connection with her 2021/22 tax return?

£0
£100
£1,500
£1,600

Answer 4

Feedback:
Merle will be charged a fixed penalty of £100 for submitting her paper tax return after the filing date of 1 April 2023 (3 months after issue of return).

Merle also failed to notify HMRC by 5 October 2022 of the new source of income. She could therefore be charged a maximum penalty equal to 30% of the potential lost revenue of £5,000, i.e. £1,500. It is likely in fact this will be £nil as Merle made an unprompted disclosure within 12 months of the due date and the failure to notify was not deliberate.

If you chose £0 you didn’t give any penalties.

If you chose £100 you only gave the penalty for filing late.

If you chose £1,500 you only gave the penalty for late notification.

Available Answers
£1,600 (2 Marks)

Question 5

Kalim has made the following payments of tax in relation to 2020/21.

1st payment on account £3,500 paid on 31 January 2021

2nd payment on account £3,500 paid on 30 September 2021

Balancing payment £2,000 paid on 27 February 2022. The payments on account were the correct amount based on the 2019/20 tax payable.

Interest on late paid tax is levied at 2.6% pa.

The amount of interest Kalim has to pay on his late paid tax is

Answer 5

Available Answers
19.00 (2 Marks)

15+4=19

first payment was on time
second payment was 60 days late: 350060/3650.026=15

balancing payment was 26 days late: 200026/3650.026=4

Question 6

Jonah commenced trading on 1 October 2021, preparing his first accounts to 30 June 2022. The tax-adjusted trading profits for the period ended 30 June 2022 were £43,785.

What is Jonah’s assessable trading profit for 2021/22?

Answer 6

Feedback:
The correct answer is £29,190

Opening year rules

Commenced trading on 1 October 2021 (2021/22)

Hence tax on an actual basis from 1 October 2021 to 5 April 2022 (6 months)

6/9 x 9 months ended 30 June 2022 = 6/9 x £43,785 = £29,190

Available Answers
29190.00 (2 Marks)

Question 7

Alfonso and Benito have been in partnership many years, sharing profits equally. On 1 November 2020 Cristiano joins the partnership, after which profits are split equally between the three partners

Recent results for the partnership are as follows:

Year ended 30 April 2021 £60,000
Year ended 30 April 2022 £108,000

What is Cristiano’s taxable trading profit for the tax year 2021/22?

Answer 7

Tax year 2021/22 is the second year of Cristiano’s involvement in the partnership

For Cristiano, the accounting period ending in the tax year 2021/22 is only 6 months long, so Cristiano is taxed on his share of profit in the first 12 months of trade

2021/22 assessment = £10,000 + (6/12 × £36,000) = £28,000

Available Answers
£28,000 (2 Marks)

Question 8

Khalid ceased trading on 31 March 2022. His taxable trading income was:

Year ended 31 December 2021: £5,600

Period ended 31 March 2022: £4,500

Khalid had £2,300 of overlap profits on commencement.

What is the taxable trading income for 2021/22?

Answer 8

7800

Question 9

In addition to her wages, Aya has received income from various sources during the tax year.

Which TWO of the following are exempt from income tax?

✓£180 of tips received from customers.
✓£100 of dividends received from an ISA investment.
✓£56 of dividends received from a shareholding in X plc.
✓£50 received from an investment in premium bonds.
✓£75 of interest received on a loan to his cousin.

Answer 9

Feedback:
Tips and most dividends and interest are taxable income.

Dividends received from an ISA investment and cash received from an investment in premium bonds are both exempt income.

Available Answers
£100 of dividends received from an ISA investment. (Correct)
£50 received from an investment in premium bonds. (Correct)

Question 10

Sam has her own business and has tax-adjusted trading profits for the year ended 31 March 2022 of £7,000. She also has a part-time employment, earning £10,000 each year.

Which two of the following types of national insurance contributions must Sam pay in relation to 2021/22?

✓Class 1 primary
✓Class 1 secondary
✓Class 2
✓Class 4

Answer 10

Feedback:
Sam has trading profits in excess of the Class 2 small profits threshold and must therefore pay NIC Class 2. However, her profits are below the annual lower earnings limit for Class 4 and she is therefore not liable to pay Class 4 NIC. Sam’s salary exceeds the earnings threshold for Class 1 primary contributions and she must therefore pay NIC Class 1.

Available Answers
Class 1 primary (Correct)
Class 2 (Correct)

Question 11

On 1 August 2021, Juanita sold a painting realising a gain of £32,800.

Juanita had already used her annual exempt amount for the tax year 2021/22. Her taxable income was £12,030 for the tax year 2021/22.

Complete the following statement:

Juanita’s capital gains tax payable for the tax year 2021/22 is….

Answer 11

Tutorial note

Taxable gains on non‐residential property which fall within the basic rate band are taxed at 10%. Those in excess of the basic rate band are taxed at 20%.

Make sure you check the information in the question to determine whether or not the taxpayer has utilised their AEA.

If you picked £2,050 you deducted the AEA and taxed all the gain at 10%.

If you picked £3,280 you taxed all the gain at 10% and ignored the BRB available.–what i picked

If you picked £6,560 you taxed the gain at 20% and ignored any BRB available.

Available Answers
£3,993 (2 Marks)

TO WORK OUT deduct taxable income from lower band-this will be taxed at the lower rate-the cgt minus the amount just calculated will be charged at 20% if above lower all taxed at 20%

Question 12

Lesley has chargeable gains of £54,045. Lesley is a higher rate taxpayer.

What is Lesley’s capital gains tax liability?

Answer 12

Feedback:
The correct answer is calculated as follows:

Taxable gains = £54,045 – £12,300

CGT: £41,745 @ 20% = £8,349

Available Answers
8349.00 (2 Marks)

Question 13

Elderberry Ltd is incorporated on 15 July 2020. It opens an interest bearing building society account on 6 August 2021 and commences to trade on 1 December 2021. It makes up its first set of accounts to 31 December 2022 and annually thereafter.

What are the dates of Elderberry Ltd’s first accounting period for corporation tax purposes?

15 July 2021 – 30 November 2021
6 August 2021 –30 November 2021
1 December 2021 – 30 November 2022
1 December 2021 – 31 December 2022

Answer 13

Feedback:
Elderberry Ltd’s first accounting period commences when it first acquires a source of income or begins to trade, whichever is earlier. In this case opening a building society account means it has acquired a source of income. This first accounting period will, in this case, end when it commences to trade.

Its first accounting period is 6 August 2021 to 30 November 2021.

Its second accounting period will run from the next day to, in this case, the next 12 months, i.e. 1 December 2020 to 30 November 2021.

Its third accounting period will be 1 December 2021 to 31 December 2021.

Its fourth accounting period onwards will be the same as its periods of account.

Available Answers
6 August 2021 –30 November 2021 (2 Marks)

Question 14

A trainee accountant made the following statements about VAT.

(1) A gift of goods worth £500 to a customer is not treated as a supply of goods

(2) Any gift of services is not a taxable supply

(3) The phrase ‘supplies outside the scope of VAT’ is just another way of saying that the goods are exempt

(4) Taxable supplies are subject to VAT at the rate of 0%, 5% or 20%

Which of the following options correctly identifies the statements which are true?

Answer 14

Feedback:
The correct answer is (2) and (4). A gift of goods to a customer is not treated as a supply of goods only if it is either a trade sample or worth less than £50 in total in any 12 month period. The treatment of a transaction as being outside the scope of VAT is not the same as treating a supply of goods as being exempt from VAT. Note that zero-rated supplies are liable to VAT albeit at a current rate of 0%. Again, this is not the same as being exempt.

Available Answers
(2) and (4) (2 Marks)

Question 15

Which of the following is not a feature of the flat rate scheme?

Businesses calculate VAT due as a flat rate percentage of their VAT inclusive turnover
The percentage applied depends on the size of business
Businesses issue normal tax invoices to customers
There is a 1% reduction in the flat rate percentage during the first year of VAT registration

Answer 15

Feedback:
The percentage depends only on the type of the business and not the size of the business.

Available Answers
The percentage applied depends on the size of business (2 Marks)

Question 16

Which TWO of the following statements about VAT are true?

✓Businesses with turnover of £1.5 million may elect to join the annual accounting scheme
✓Businesses operating the flat rate scheme need not issue VAT invoices
✓Businesses which are in a net VAT repayment position may elect for monthly repayments of VAT
✓Businesses operating the flat rate scheme apply their sector percentage to total VAT inclusive turnover
✓Businesses operating the cash accounting scheme must wait 6 months before reclaiming VAT on bad debts

Answer 16

Feedback:
Businesses which are in a net VAT repayment position may elect for monthly repayments of VAT.

Businesses operating the flat rate scheme apply their sector percentage to total VAT inclusive turnover.

To join the annual accounting scheme annual taxable turnover must be forecast as less than £1.35 million although companies already in the scheme may continue to operate it until turnover exceeds £1.6 million.

Businesses operating the flat rate scheme should continue to issue VAT invoices so that the customer accounts for VAT in the standard way.

Businesses operating the cash accounting scheme by definition benefit from automatic bad debt relief.

Available Answers
Businesses which are in a net VAT repayment position may elect for monthly repayments of VAT (Correct)
Businesses operating the flat rate scheme apply their sector percentage to total VAT inclusive turnover (Correct)

Question 17

Warren has accounting periods ending on 30 June each year, and he is within the annual accounting scheme.

By what date must Warren submit the VAT return for his accounting year?

30 July
31 July
30 August
31 August

Answer 17

Feedback:
For annual accounting the return must be made within two months of the end of the accounting period, i.e. 31 August.

Available Answers
31 August (2 Marks)

Question 18

A professional accountant has for many years given tax advice to a husband and wife who are now going through a divorce. They are in dispute with each other in relation to matters that affect their tax affairs.

Which two of the following fundamental principles are threatened in this situation?

(1) Objectivity

(2) Professional competence and due care

(3) Confidentiality

(4) Professional behaviour

Answer 18

Feedback:
The fundamental principles that are most threatened by this situation are objectivity and confidentiality.

Available Answers
(1) and (3) (2 Marks)

Question 19

Freedom Ltd has 20 employees with monthly PAYE income tax and national insurance contributions of £3,500.

Select whether the following statements are true or false.

Freedom Ltd must make its PAYE payments electronically.

Freedom Ltd must supply each employee with their P60 by 6 July following the end of the tax year.

Answer 19

Feedback: Freedom Ltd must make its PAYE payments electronically.:
Employers with fewer than 250 employees have the choice of paying electronically by 22nd of the month or sending payment by post by 19th of the month.

Freedom Ltd must supply each employee with their P60 by 6 July following the end of the tax year.:
Employees must be provided with their P60 by 31 May following the end of the tax year.

Employees must be provided with their P11d by 6 July following the end of the tax year.

Freedom Ltd must make its PAYE payments electronically.
Available Answers
False (Correct)
Freedom Ltd must supply each employee with their P60 by 6 July following the end of the tax year.
Available Answers
False (Correct)

Question 20

Phone plc submitted its corporation tax return for the year ended 31 December 2021 on 15 August 2022.

HMRC may issue a notice to enquire into this return at any time until

31 December 2022
15 August 2023
1 October 2023
31 December 2023

Answer 20

Feedback:
A formal enquiry can be opened within 12 months of the actual submission date of 15 August 2023.

Available Answers
15 August 2023 (2 Marks)

Question 21

Bear plc filed its corporation tax return for the year ended 31 March 2021 on time. The directors have now realised that an error was made and wish to rectify this via an ‘overpayment relief’ claim as it will otherwise result in an overpayment of tax.

Select which one of the following options correctly identifies the latest date by which the claim must be made.

31 March 2022
31 March 2023
31 March 2025
31 March 2027

Answer 21

Feedback:
An ‘overpayment relief’ claim must be made within four years of the end of the accounting period.

Available Answers
31 March 2025 (2 Marks)

Question 22

William is a VAT registered trader whose taxable supplies are more than £210,000 pa. William filed his VAT return for the quarter ended 30 April 2020 on 12 June 2020, having paid the VAT due on time. William filed his VAT return for the quarter ended 31 July 2021 on time but failed to pay the associated VAT until 30 September 2021. All other returns and payments have been made on time.

What is the default surcharge relating to the VAT return for the quarter ended 31 July 2021?

£100
5% of VAT paid late
2% of VAT paid late
£0

Answer 22

Feedback:
The late filing of the VAT return for the quarter ended 30 April 2020 is a default which will start a twelve month surcharge period.

The late payment of VAT for the quarter ended 31 July 2021 is a default but is outside the previous surcharge period so will not lead to a surcharge. It will start another twelve month surcharge period.

Available Answers
£0 (2 Marks)

Question 23

Billy is married to Maria. In 2021/22 Billy and Maria had net income before personal allowances of £42,500 and £6,800 respectively. Wherever possible Billy and Maria claim the marriage allowance.

Which TWO of the following are correct?

✓The marriage allowance will reduce Billy’s income tax liability by £1,260 in 2021/22.
✓Billy’s personal allowance will be £12,570 in 2021/22.
✓Maria’s income tax liability will be unaffected by the marriage allowance in 2021/22.
✓Billy’s income is too high for a marriage allowance claim in 2021/22.

Answer 23

Feedback:
Billy’s personal allowance will be £12,570 in 2021/22. Maria’s income tax liability will be unaffected by the marriage allowance in 2021/22.

The marriage allowance does not affect Billy’s personal allowance, but, where available, it reduces his income tax liability by 20% of £1,260.

Maria’s income tax liability is nil regardless of a claim for the marriage allowance because her income is less than her personal allowance in either case.

After the personal allowance is taken off Billy’s net income, none of his income will be taxed at the higher rate of income tax.

Available Answers
Billy’s personal allowance will be £12,570 in 2021/22. (Correct)
Maria’s income tax liability will be unaffected by the marriage allowance in 2021/22. (Correct)

Question 24

Oliver and Eleanor have been in partnership for many years, preparing accounts to 31 December each year.

Until 30 June 2021 profits were shared 70:30 to Oliver and Eleanor respectively, with no allocated salaries.

As at 1 July 2021 the profit sharing ratio changed to 80:20 to Oliver and Eleanor respectively, after allocating a salary of £20,000 per annum to Eleanor.

The adjusted trading profits for the accounting year ended 31 December 2021 are £140,000.

How much of the profit for the year ended 31 December 2021 is allocated to Eleanor?

£43,000
£35,000
£44,000
£45,000

Answer 24

£35,000 is incorrect as the salary is treated as part of the profit share.

£44,000 is incorrect as the relevant agreement must be applied to the proportion of the year to which it relates. The new agreement does not apply to the first six months of the period.

£45,000 is incorrect as any salaries allocated to partners reduce the profits available to share out using the profit sharing ratio.

Available Answers
£43,000 (2 Marks)

Question 25

Eli and Harry have been in partnership for many years. Up until 30 June this year Harry received a salary of £10,000 per annum and the remaining profit was shared in the ratio 70:30 to Eli and Harry respectively. From 1 July Harry continued to receive his salary but the profit sharing ratio was adjusted to 80:20 to Eli and Harry respectively. The adjusted trading profits for the accounting year ended 31 December are £80,000.

What is the trading income assessed on Harry for the current year?

£16,000
£20,000
£24,000
£27,500

Answer 25

Feedback:
If you answered £16,000 you forgot to allocate the salary and used only the revised partnership sharing ratio.

If you answered £20,000 you forgot to allocate the salary.

If you answered £24,000 you forgot to allocate the salary and used only the original partnership sharing ratio.

Answer 27500

Question 26

Faz, having been self-employed for a number of years decided to cease trading on 28 February 2022. His tax adjusted profits for recent years have been:

Year ended 31 May 2020 £35,000
Year ended 31 May 2021 £14,000
Period ended 28 February 2022 £8,000

Faz has overlap profits of £2,000 brought forward from the commencement of trade.

What is Faz’s taxable trading income for the tax year 2021/22?

£9,500
£22,000
£20,000
£6,000

Answer 26

Tutorial note

Faz ceased to trade on 28 February 2022 which falls into tax year 2021/22.

Up to that tax year Faz was taxed on the current year basis therefore in 2020/21, Faz was taxed on the profits of the accounting period ending in that year i.e. y/e 31 May 2020.

In the tax year in which he ceases to trade he is taxed on any trading profits not taxed in previous years less his overlap profits that arose when he started his business.

If you had £9,500 you used the last 12 months to 28.2.22 less overlap profits.

If you had £22,000 you ignored the overlap profits.

If you had £6,000 you ignored the profits for 31.5.21.

Available Answers
£20,000 (2 Marks)

Question 27

In addition to his salary of £40,000, Pat received the following income during the tax year.

£

Betting winnings 200
Interest received on National Savings & Investments Direct Saver Account 76
Interest received on National Savings Certificates 52
Interest received on a building society account 30

His total net income for the tax year is:

Your answer to this question must be to the nearest whole number

Answer 27

Feedback:
The correct answer is £40,106. Income from winnings and National Savings Certificates is exempt, the rest is taxable.

Available Answers
40106 (2 Marks)
40,106 (2 Marks)

Question 28

Disc Ltd made a trading profit of £31,500 in its year ended 31 March 2022. The company has a director with an annual salary of £8,000. The company only has one other employee, Dermot, who has an annual salary of £45,000, paid in equal amounts over the year.

What is the total national insurance liability of the company for 2021/22?

Answer 28

Feedback:
The correct answer is £990

The director’s salary is below the secondary threshold so the company has no Class 1 secondary contributions in respect of that salary. The company only has a liability to Class 1 secondary contributions on Dermot’s salary, less the employment allowance. Disc Ltd is entitled to the employment allowance as the company has an employee in addition to the director.

£(45,000 – 8,840) x 13.8% = £4,990 – £4,000 = £990

Available Answers
990.00 (2 Marks)

Question 29

Charles was a wealthy man who had disposed of a number of his assets over the few years leading up to his death in February 2022.

Which two of the following are not chargeable disposals for capital gains tax purposes?

✓In August 2013, the gift of a painting to the National Gallery, to be displayed in an exhibition
✓In January 2014, the gift of a painting to his son
✓In July 2020, the loss of a painting valued at £50,000 during a fire at Charles’ house
✓In February 2022, the gift of a painting valued at £40,000 to his daughter on his death

Answer 29

KAP1354528
Feedback:
Gifts to public art galleries are exempt provided the asset is used for the purposes of the art gallery.

Death is not a disposal for CGT – Charles’ daughter has simply made an acquisition at market value.

Available Answers
In August 2013, the gift of a painting to the National Gallery, to be displayed in an exhibition (Correct)
In February 2022, the gift of a painting valued at £40,000 to his daughter on his death (Correct)

Question 30

In January 2000, Matilda purchased a house for £235,000. Matilda has always rented out the house to tenants. In April 2005 Matilda installed a new kitchen at a cost of £8,500. In January 2022 Matilda sold the house for £435,000. Matilda had to pay estate agency fees at 1% of the sale price.

What is the chargeable gain on disposal of the house?

£187,150
£200,000
£195,650
£191,500

Answer 30

Available Answers
£187,150 (2 Marks)

Question 31

1. Diane sold an antique table in November 2021 for £45,000, paying commission of 5% to the auction house. The table had cost £20,000 in March 2001.

Assuming this was her only capital disposal in the tax year 2021/22 and she has taxable income of £19,150, what is the amount of capital gains tax payable by Diane for the tax year 2021/22?

£1,045
£2,090
£2,715
£1,270
(2 Marks)

Answer 31

All of the taxable gains fall into the basic rate band and are therefore taxed at the rate of 10%.

If you picked £2,090 you taxed the gain at 20%.

If you picked £2,715 you did not deduct the AEA, which resulted in part of the gain being taxed at the higher rate.

If you picked £1,270 you did not deduct the costs of sale.

Available Answers
£1,045 (2 Marks)

Question 32

Mary has taxable income in the tax year 2021/22 of £5,040. Mary has also made taxable gains of £53,456 in the tax year 2021/22.

What is Mary’s capital gains tax liability for the tax year 2021/22?

Your answer to this question must be to the nearest whole number.

Answer 32

Available Answers
7425.00 (2 Marks)

Question 33

Which TWO of the following are not taxable supplies?

✓Gift of a trade sample to each customer, each item retails at £90
✓Gift of goods to the brother of the managing director costing £150
✓Payment of dividends to shareholders of £4,000
✓Goods permanently taken out of the business by sales director valued at £400

Answer 33

Feedback:
Gifts are usually taxable supplies, but not when the gift is a sample.

The payment of dividends is specifically outside the scope of VAT.

Available Answers
Gift of a trade sample to each customer, each item retails at £90 (Correct)
Payment of dividends to shareholders of £4,000 (Correct)

Question 34

Jacket Ltd makes standard-rated supplies. At the end of December 2021 its taxable turnover in the previous 12 months exceeds £85,000 for the first time. Its turnover is expected to rise gradually.

The company is required to notify HMRC of its liability to register by

Registration takes effect from

Answer 34

Feedback: Value added tax Q10a FA21:
Under the historic turnover test, notify HMRC within 30 days of the end of the month in which the threshold was exceeded (30 January).

Registration effective from the first of the month after the end of the month following the threshold being exceeded (1 February).

Value added tax Q10a FA21
Available Answers
30 January 2022 (Correct)
Value added tax Q10b FA21
Available Answers
1 February 2022 (Correct)

Question 35

Nancy, a VAT-registered trader, incurs the following expenditure.

Select whether input tax is recoverable on each item.

Christmas party for staff

Hiring a marquee at a sporting event to use for entertaining of UK customers

Purchase of a pool car which is used only for business purposes

Answer 35

Feedback: Value added tax Q12a FA21:
Input tax on the costs of entertaining is specifically irrecoverable, unless it relates to entertaining employees or overseas customers.

Input tax is not recoverable on the purchase of a car unless the car is used exclusively for business purposes.

Value added tax Q12a FA21
Available Answers
Recoverable (Correct)
Value added tax Q12b FA21
Available Answers
Not recoverable (Correct)
Value added tax Q12c FA21
Available Answers
Recoverable (Correct)

Question 36

Niamh has been trading for three years but only became VAT registered on 1 March 2022.

Identify whether she is able to reclaim input tax on either of the following costs.

A computer used for the accounts purchased in January 2021 and still in use at 1 March 2022

Telephone bill for the quarter to 30 November 2021

Answer 36

Feedback: Value added tax Q14a FA21:
VAT is reclaimable on goods and capital assets purchased within 4 years before registration and still held by the business at registration.

VAT is reclaimable on services provided to the business within six months before registration.

Value added tax Q14a FA21
Available Answers
Reclaim (Correct)
Value added tax Q14b FA21
Available Answers
Reclaim (Correct)

Question 37

Minor Ltd had a VAT liability of £42,000 in its year ended 31 March 2021. The liability for the year ended 31 March 2022 is £42,420. Minor Ltd is a member of the annual accounting scheme and opted to make three quarterly payments during the year.

Complete the sentences below by selecting the appropriate answer from the dropdown lists.

The balancing payment for the year ended 31 March 2022 is

The payment is due by

Answer 37

Feedback: The balancing payment for the year ended 31 March 2022 is::
The balancing payment to be paid for the year ended 31 March 2022 is £10,920:

Instalments already paid = 75% x £42,000 = £31,500

So balancing payment = £42,420 - 31,500 = £10,920

The payment is due by::
The payment is due by 31 May 2022 as the payment and return are due two months after the end of the period.

The balancing payment for the year ended 31 March 2022 is:
Available Answers
£10,920 (Correct)
The payment is due by:
Available Answers
31 May 2022 (Correct)

Question 38

Which of the following is a feature of the cash accounting scheme?

Input tax can be recovered before the supplier has been paid.
Automatic bad debt relief is given once a debt has been outstanding for six months
Actual tax point is not relevant when operating the cash accounting scheme.
Businesses must leave the scheme if the value of supplies in the previous 12 months exceeds £1,350,000.

Answer 38

Feedback:
Actual tax point is not relevant when operating the cash accounting scheme.

Input VAT is recognised and therefore recoverable once cash has been paid to the supplier.

Bad debt relief is automatic in any case under the cash accounting scheme because output
VAT is not paid to HMRC until the taxpayer has received cash from their customer.

In fact, businesses must leave the scheme if the value of supplies in the previous 12 months
exceeds £1,600,000 (not £1,350,000).

Available Answers
Actual tax point is not relevant when operating the cash accounting scheme. (2 Marks)

Question 39

Keenan is newly VAT registered and has just joined the flat rate scheme. The flat rate percentage for his type of business is 7% after taking account of the first year discount available.

The VAT-exclusive turnover of his business is £25,000 for the first quarter and purchases (excluding VAT) of £1,200 were incurred.

All purchases and sales are subject to VAT at the standard rate.

What is the VAT due for the quarter?

£1,666
£1,750
£1,999
£2,100

Answer 39

Feedback:
7% of VAT-inclusive supplies

7% x (£25,000 x 1.20) = £2,100

Available Answers
£2,100 (2 Marks)

Question 40

Income tax question says company paid x for a car but list price is say x+1, what would you calculate the employee taxable benefit?

Answer 40

By using the list price of the car! not price employer paid

Question 41

Lily has also run her own business as a sole trader for many years. Lily has calculated her taxable trading profits for the tax year 2021/22 to be £15,800. In arriving at her taxable trading profits, Lily deducted the following amount:
£2,500 in respect of a health and safety fine

How would you deal with this in a trading income computation?

Answer 41

Adding it back.

Question 42

The ICAEW members’ legal and regulatory guidance includes anti-money laundering guidance. This guidance has been prepared to assist professional accountants in complying with their obligations in relation to the prevention, recognition and reporting of money laundering.

Which of the following is not a control or procedure required by money laundering legislation?

Identification of all large or unusual transactions made by a client
Taking steps to ensure all clients can be properly identified
Reporting of all large or unusual transactions made by a client to the National Crime Agency (NCA)
Creation of the role of Money Laundering Reporting Officer (MLRO) within the firm

Answer 42

Feedback:
The MLRO is responsible for investigating any large or unusual transactions. Such transactions would only be reported to the NCA via a suspicious activity report (SAR) if there were sufficient grounds for suspicion.

Available Answers
Reporting of all large or unusual transactions made by a client to the National Crime Agency (NCA) (2 Marks)

Question 43

Which of the following statements about discovery assessments and determinations are correct?

✓If a taxpayer does not file a tax return HMRC can issue a discovery assessment.
✓A taxpayer cannot appeal against a determination issued by HMRC.
✓The time limit for HMRC to issue a discovery assessment is four years from the end of the relevant period if there has been no careless or deliberate behaviour.
✓If HMRC wishes to make a determination this must be done within four years of the statutory filing date.

Answer 43

Feedback:
Where a taxpayer does not file a tax return HMRC can issue a determination (not a discovery assessment).

A taxpayer may make an appeal against any of the following, but not a determination:

an information notice
a request for documentation in the course of a compliance check
amendments made as the result of a compliance check
HMRC’s right to raise a discovery assessment
a discovery assessment
a VAT assessment
the imposition of a penalty.
The time limits for raising a discovery assessment are:

4 years from the end of the relevant period if there has been no careless or deliberate behaviour
6 years from the end of the relevant period for careless behaviour
20 years from the end of the relevant period if due to deliberate behaviour.
A determination must be made within three years of the statutory filing date (not four).

Available Answers
A taxpayer cannot appeal against a determination issued by HMRC. (Correct)
The time limit for HMRC to issue a discovery assessment is four years from the end of the relevant period if there has been no careless or deliberate behaviour. (Correct)

Question 44

Phone plc submitted its corporation tax return for the year ended 31 December 2021 on 15 August 2022. HMRC may correct any obvious errors or omissions in the return until:

15 May 2023
15 August 2023
31 August 2023
31 December 2023

Answer 44

Feedback:
Obvious errors and omissions can be corrected within nine months of the actual submission date (not the normal due submission date).

Available Answers
15 May 2023 (2 Marks)

Question 45

Jane has made the following errors in her return for 2021/22:

Error Tax effect
Careless understatement of earnings Understatement of £1,000
Forgetting to claim telephone costs Overstatement of £500

Which of the following is the maximum penalty that would be charged on Jane by HMRC?

£450
£350
£300
£150

Answer 45

Feedback:
The errors are careless and the maximum penalty is 30% of Potential Lost Revenue (PLR). The over and understatements are netted off to give PLR of £500. Therefore the penalty is £150 (30% x £500).

Available Answers
£150 (2 Marks)

Question 46

Jacob commenced trading on 1 July 2020, preparing his first accounts to 31 December each year.

The adjusted trading profits for the first two periods of account are:

£

6 months ended 31 December 2020 £4,800
Year ended 31 December 2021 £22,640

What are the overlap profits on commencement?

Answer 46

Feedback:
Overlap profits are £5,660

In the tax year 2020/21 assess 1 July 2020 to 5 April 2021.

In the tax year 2021/22 assess y/e 31 December 2021 (CYB)

Overlap profits are 1 January 2021 to 5 April 2021 (3 months) = 3/12 x £22,640 = £5,660

Available Answers
5660.00 (2 Marks)

Question 47

Louis has provided you with the following information for the tax year 2021/22:

£

Salary (PAYE deducted £51,060) 146,400
Dividends received 8,400
Bank interest received 7,000

Calculate the income tax payable by Louis for the tax year 2021/22.

Answer 47

Note: there is no savings allowance because Louis is an additional rate taxpayer.

If you chose £56,428 you calculated IT liability rather than payable.

If you chose £56,228 you gave a £500 savings nil rate band and calculated IT liability rather than payable.

If you chose £5,168 you gave a £500 savings nil rate band.

Available Answers
£5,368 (2 Marks)

Question 48

George has the following details for the tax year.

£

Adjusted trading profits before interest and capital allowances 13,800
Interest paid on business overdraft 1,200
Capital allowances 900
Balancing charge 340

What are George’s earnings for Class 4 national insurance purposes?

Answer 48

If you answered £11,360 you deducted the balancing charge as if it were a balancing allowance.

If you answered £11,700 you forgot the balancing charge.

If you answered £13,240 you didn’t deduct the interest.

Available Answers
£12,040 (2 Marks)

Question 49

Table Ltd realised a chargeable gain on disposal of some shares of £20,800 during y/e 31 March 2022.

The tax suffered by the Table Ltd on its chargeable gain is:

£1,615
£2,080
£3,952
£4,160

Answer 49

Feedback:
The tax suffered on the gain is 19% x £20,800 = £3,952.

If you answered £1,615 you incorrectly deducted the AEA: companies are not entitled to the AEA.

If you answered £2,080 you used the basic rate of capital gains tax (10%) whereas companies such as Table Ltd pay corporation tax on their gains at 19%.

If you answered £4,160 you used the higher rate of capital gains tax (20%) whereas companies such as Table Ltd pay corporation tax on their gains at 19%.

Available Answers
£3,952 (2 Marks)

Question 50

In February 2022 Tom made a gain on a commercial property of £54,000.

Tom made one earlier disposal during the tax year which used up £8,600 of his annual exempt amount. Tom had taxable income (after the deduction of the personal allowance) of £42,000 in the tax year 2021/22.

What is Tom’s capital gains tax liability for the tax year 2021/22?

Answer 50

Available Answers
10060.00 (2 Marks)

Question 51

Are the following statements true or false?

(1) An exempt trader can register for VAT

(2) A zero-rated trader who is registered for VAT does not charge VAT to his/her customers

(3) An exempt trader cannot recover input tax

(4) A zero-rated trader is likely to be in a repayment position every time he/she submits a VAT return

Answer 51

Feedback: (1):
(1) This statement is FALSE – an exempt trader cannot register for VAT.

(2) This statement is FALSE – a zero-rated trader who is VAT registered charges VAT at 0% on his/her supplies.

(3) This statement is TRUE– an exempt trader cannot register for VAT and therefore cannot recover input tax.

(4) This statement is TRUE – a zero-rated trader charges output tax at 0% but is still entitled to recover input tax – this is likely to give rise to a repayment if input tax has been suffered at the standard or the reduced rate.

(1)
Available Answers
FALSE (Correct)
(2)
Available Answers
FALSE (Correct)
(3)
Available Answers
TRUE (Correct)
(4)
Available Answers
TRUE (Correct)

Question 52

Andrew orders some goods from Garden Ltd on 1 October. They are dispatched on 9 October. Andrew then receives the invoice for the goods dated 29 October. Garden Ltd receives payment for the goods on 7 December. Garden Ltd is not a member of the cash accounting scheme.

The basic tax point of the transaction is

The actual tax point of the transaction is

Answer 52

Feedback: Value added tax Q17a FA21:
The basic tax point of the transaction is: 9 October

Basic tax point is the date the goods are made available to the customer.

The actual tax point of the transaction is: 9 October

Actual tax point is not the invoice date as more than 14 days after the basic tax point.

Value added tax Q17a FA21
Available Answers
9 October (Correct)
Value added tax Q17b FA21
Available Answers
9 October (Correct)

Question 53

Jack has a quarter ended 31 March 2022. His normal payment terms are one month after invoice date.

Jack is owed £1,000 by Porridge Ltd on a disputed invoice issued on 20 March 2020. Jack believes that the amount which was written off in the accounts at the end of 2020 will not be paid. Jack inadvertently forgot to claim bad debt relief at the time.

Toast Ltd owes Jack £1,500 from an invoice issued on 10 October 2021. Jack does not expect payment of this and has written it off in the accounts.

What is the correct amount on which bad debt relief can be claimed in the quarter ended 31 March 2022?

£0
£1,000
£1,500
£2,500

Answer 53

Feedback:
Porridge Ltd – eligible for relief.

Toast Ltd – not yet six months since payment due (invoice only issued 10 October 2021) so cannot yet be claimed.

Available Answers
£1,000 (2 Marks)

Question 54

Mr Cameron is a VAT-registered trader. He orders some items of stock from Clegg Ltd to be used in his business. Clegg Ltd issues a VAT invoice which Mr Cameron duly pays. However, the items are never received by Mr Cameron.

What is Mr Cameron’s position regarding the input tax suffered?

No input tax can be recovered as no item was ever dispatched
Input tax can be recovered as the items were for business use
Input tax can be recovered as the items were for business use and a VAT invoice is held by Mr Cameron
No input tax can be recovered as it would appear unlikely that it has been paid to HMRC by Clegg Ltd

Answer 54

Feedback:
No input tax can be recovered as no item was ever supplied.

Mr Cameron cannot recover his input tax as no supply has ever been made. Input tax can only be recovered on taxable supplies made to a business.

Available Answers
No input tax can be recovered as no item was ever dispatched (2 Marks)

Question 55

Paul, after five years of VAT-registered trading, joined the flat rate scheme. The flat rate percentage for Paul’s trade sector is 11%.

For his first trading quarter under the scheme Paul had total turnover of £17,000 (exclusive of VAT at the standard rate). Paul’s total purchases were £4,800 (exclusive of VAT at the standard rate).

How much VAT is payable to HMRC for Paul’s first trading quarter in the flat rate scheme?

£1,342
£1,610
£1,870
£2,244

Answer 55

Feedback:
The flat rate percentage is applied to the total (both taxable and exempt) turnover of the business inclusive of VAT i.e. £17,000 × 1.20 × 11% = £2,244.

If you picked £1,342 you deducted total purchases from total turnover.

If you picked £1,610 you deducted the VAT inclusive purchases from VAT inclusive total turnover.

If you picked £1,870 you used total turnover excluding VAT.

Available Answers
£2,244 (2 Marks)

Question 56

Which of the following statements about the cash accounting scheme is TRUE?

VAT is accounted for on the basis of the basic or actual tax point date
Relief for bad debts is given in the quarter after the debt has been written off
A person with taxable supplies of less than £1,600,000 can join the scheme
The scheme allows deferral of payments of output VAT to HMRC where extended credit is given

Answer 56

Feedback:
Available Answers
The scheme allows deferral of payments of output VAT to HMRC where extended credit is given (2 Marks)

Question 57

Giovanna makes standard-rated supplies. She voluntarily registered for VAT from her first day of trading and simultaneously joined the flat rate scheme. The flat rate percentage she must use is 11%.

She has now been trading for two years. For her latest trading quarter Giovanna had total turnover of £8,500 (exclusive of VAT). Giovanna’s total purchases were £2,400 (exclusive of VAT).

How much VAT is payable to HMRC for Giovanna’s latest trading quarter?

£671
£805
£935
£1,122

Answer 57

Feedback:
D £1,122

The flat rate percentage is applied to the total (both taxable and exempt) turnover of the business inclusive of VAT, ie, £8,500 x 1.20 x 11% = £1,122.

LO 6f

Available Answers
£1,122 (2 Marks)

Question 58

Clementine orders some goods from Forty-Niner plc on 1 May. They are dispatched on 8 May. On 4 June Clementine receives the respective invoice dated 2 June. Her payment arrives at the company on 7 June. Forty-Niner plc does not operate the cash accounting scheme.

Which of the following options is the tax point for the transaction?

1 May
8 May
2 June
7 June

Answer 58

Feedback:
B 8 May

The time the goods are made available – invoice not issued within 14 days.

LO 6d

Available Answers
8 May (2 Marks)

Question 59

Tractor Ltd realised a chargeable gain of £16,000 on disposal of a building in January 2022.

What is the tax suffered by Tractor Ltd on its chargeable gain?

£370
£703
£3,040
£3,200

Answer 59

Feedback:
C £3,040

Companies pay corporation tax on gains (at 19%). Companies do not have an annual exempt amount.

19% x £16,000 = £3,040

LO 4c

Available Answers
£3,040 (2 Marks)

Question 60

Pineapple plc sold an antique writing desk which had been purchased in January 2018 for £18,000. It was sold for £3,200 in January 2021. The proceeds were received net of selling fees of £400.

What is Pineapple plc’s allowable loss?

£0
£(12,400)
£(15,200)
£(12,000)

Answer 60

Feedback: Sub1:
B £(12,400)

As a non-wasting asset, the chattel rules apply. As it was sold at a loss, actual proceeds are substituted by deemed proceeds of £6,000 to restrict the loss.

Question 61

Azure plc filed its corporation tax return for the year ended 31 December 2020 on 28 February 2022. HMRC wishes to conduct an enquiry into the corporation tax return.

What is the latest date by which HMRC may give notice of its intention to enquire?

31 December 2022
28 February 2023
31 March 2023
30 April 2023

Answer 61

Feedback:
D 30 April 2024

Where a return is filed late, HMRC has the right to give notice of its intention to conduct an enquiry into a return for 12 months from the next quarter date of actual submission. The quarter dates are 31 January, 30 April, 31 July, and 31 October. The return should have been filed within 12 months of the period of account end, ie, by 31 December 2022. As Azure plc filed its return late on 28 February 2023, the next quarter date is 30 April 2023, so the anniversary of that date is 30 April 2024.

LO 2f

Available Answers
30 April 2023 (2 Marks)

Question 62

Ethel submitted her 2021/22 tax return on 1 December 2022. She deliberately omitted to include rental income from an overseas property to save tax, as she did not thin that HMRC would find out about the income.

Until what date can HMRC raise a discovery assessment to collect tax on the undisclosed income?

5 April 2026
5 April 2028
5 April 2042
5 April 2043

Answer 62

Feedback:
C 5 April 2043

HMRC may raise a discovery assessment where full disclosure has not been made either due to negligence or fraud at any time up until 20 years after the end of the tax year.

LO 2c

Available Answers
5 April 2042 (2 Marks)

Question 63

Fred owes unpaid income tax to HMRC. HMRC is seeking to recover the debt directly from Fred’s bank account.

Which two of the following statements are correct?

✓HMRC can recover the debt in this way only if exceeds £5,000.
✓Before the debt is recovered, there will be period when Fred can object to the recovery.
✓Fred must be left with at least £1,000 in his accounts after the debt recovery.
✓HMRC must be satisfied that Fred is aware that the sum is due.

Answer 63

Feedback:
B Before the debt is recovered, there will be a period when Felicity can object to the recovery.

D HMRC must be satisfied that Felicity is aware that the sum is due.

HMRC can recover the debt in this way if it is at least £1,000.

Felicity must be left with at least £5,000 in her accounts after the debt recovery.

LO 2c

Available Answers
Before the debt is recovered, there will be period when Fred can object to the recovery. (Correct)
HMRC must be satisfied that Fred is aware that the sum is due. (Correct)

Question 64

Abacus plc filed its corporation tax return for the year ended 31 December 2020 on time. It has now realised that an error was made and it wishes to rectify this via a claim for ‘overpayment relief’ as it will otherwise result in an overpayment of tax.

What is the latest date by which the claim must be made?

31 December 2021
31 December 2022
31 December 2024
31 December 2026

Answer 64

Feedback:
C 31 December 2025

A claim for ‘overpayment relief’ must be made within four years of the end of the accounting period.

LO 2c

Available Answers
31 December 2024 (2 Marks)

Question 65

Anne received her self-assessment return relating to the year 2021/22 on 15 December 2022.

What is the latest date by which Anne should submit her return online?

31 December 2022
31 January 2023
15 March 2023
31 March 2023

Answer 65

Feedback:
C 15 March 2024

A taxpayer who wishes to submit a tax return online must do so by the later of 31 January following the tax year end and three months from the date the return was issued.

LO 2d

Available Answers
15 March 2023 (2 Marks)

Question 66

Andrew is an employee (not a director) of Toes Ltd with an annual salary of £50,000 and bank interest of approximately £1,500 per year.

What type of self assessment return is Andrew required to file each year?

Andrew may file a short tax return
Andrew must file a full tax return
Assuming Andrew were to leave his employment to set up in business with a turnover of £10,000 per annum, what type of self assessment return would he then be required to file each year?

Andrew may file a short tax return
Andrew must file a full tax return

Answer 66

Feedback: Sub1:
A Andrew may file a short tax return

C Andrew may file a short tax return

A taxpayer who is an employee but not a director, a sole trader with a turnover of less than £85,000 per annum or a pensioner is not required to submit a full tax return each year. The taxpayer may however, decide to continue to submit a full tax return in any event. This is voluntary and not a requirement unless the taxpayer is sent a full return by HMRC.

LO 2c

Sub2
Available Answers
Andrew may file a short tax return (Correct)
Sub1
Available Answers
Andrew may file a short tax return (Correct)

Question 67

Parminder is an employee of Sales Ltd with a gross annual salary of £50,000. Parminder also has taxable benefits worth £17,970 for 2021/22.

What is Parminder’s PAYE code for 2021/22?

PAYE code K:

Note: Because Parminder’s benefits relate to accommodation, they cannot be taxed via voluntary payrolling.

Answer 67

Feedback:
PAYE code K = 539

£

Personal allowance 12,570
Less taxable benefits (17,970)
Net allowances (5,400)
Remove the last digit (gives 540) and deduct 1.
PAYE code K539
LO 2b

Available Answers
539.00 (2 Marks)

Question 68

Diana is an individual who does not have a trade or business of any kind. Diana is an employee earning £30,000 per year and a shareholder in Firm Ltd. Diana has heard that the following taxes exist in the UK and is unsure which of them she pays personally:

(1) Capital gains tax

(2) Corporation tax

(3) Income tax

(4) National insurance contributions

(5) Value added tax

Which of the following options correctly identifies which taxes Diana could or does suffer personally?

Answer 68

Feedback:
C (1), (3), (4) and (5) only

As an employee Diana will be liable to income tax and national insurance contributions. As an individual Diana could pay capital gains tax on the disposal of an asset. As an individual Diana must incur VAT in her day to day life as the final consumer. As an individual Diana cannot personally pay corporation tax.

Question 69

Priscilla started trading in the winter of 2020 but did not register for VAT because she expected that her turnover would be below the registration limits. On 31 May 2021 she realised that her future taxable turnover would exceed £85,000 in the next 30 days alone.

By what date must Priscilla notify HMRC that she is liable to be registered for VAT?

31 May 2021
29 June 2021
1 July 2021
From what date must Priscilla charge VAT on her taxable supplies?

31 May 2021
30 June 2021
1 July 2021

Answer 69

Feedback: S1:
B 29 June 2022

Priscilla must notify HMRC by the end of the 30-day period for which it is believed the threshold will be exceeded.

D 31 May 2022

Under the future prospects test registration takes effect from the beginning of the 30-day period.

LO 6c

S1
Available Answers
29 June 2021 (Correct)
S2
Available Answers
31 May 2021 (Correct)

Question 70

Priscilla started trading in the winter of 2020 but did not register for VAT because she expected that her turnover would be below the registration limits. On 31 May 2021 she realised that her future taxable turnover would exceed £85,000 in the next 30 days alone.

By what date must Priscilla notify HMRC that she is liable to be registered for VAT?

31 May 2021
29 June 2021
1 July 2021
From what date must Priscilla charge VAT on her taxable supplies?

31 May 2021
30 June 2021
1 July 2021

Answer 70

Feedback: S1:
B 29 June 2022

Priscilla must notify HMRC by the end of the 30-day period for which it is believed the threshold will be exceeded.

D 31 May 2022

Under the future prospects test registration takes effect from the beginning of the 30-day period.

LO 6c

S1
Available Answers
29 June 2021 (Correct)
S2
Available Answers
31 May 2021 (Correct)

Question 71

Quentin, who is registered for VAT, supplies computer hardware and related support services.

On 28 March 2022 he gave a new laptop to his sister. The laptop cost the business £2,500 (excluding VAT) in January 2022 but the same model could have been purchased for £2,000 on 28 March 2022 (excluding VAT).

How much output VAT should Quentin include in his VAT return in respect of the above transaction?

£333.33
£400.00
£416.67
£500.00

Answer 71

Feedback:
B £400.00

A gift of business assets is a deemed supply for VAT purposes, unless it is a trade sample or the cost of gifts made to the same person in a 12-month period does not exceed £50.

The gift of the laptop is therefore a deemed supply. The value of the supply is the VAT exclusive cost Quentin would have had to pay at the time of the supply to replace the laptop, ie, £2,000.

The output VAT to be accounted for by Quentin is £2,000 × 20% = £400.00

LO 6e

Available Answers
£400.00 (2 Marks)

Question 72

Charlie has a shop selling women’s clothing. She gave a coat that she had bought for £120 to her sister. She would have sold the coat in the shop for £200. All figures are VAT-inclusive.

What is the value of the coat for VAT purposes?

£200.00
£166.67
£120.00
£100.00

Answer 72

Feedback:
D £100.00

VAT-exclusive price payable by the person supplying the asset to purchase an identical replacement (ie, at cost).

LO 6b

Available Answers
£100.00 (2 Marks)

Question 73

Shower plc has made two disposals in its year ended 31 August 2022.

For each of the two disposals select how the resulting gains should be treated in the calculation of Shower plc’s chargeable gains.

Gain of £24,000 on the disposal of a rare African snake which had not been used in the business.

Chargeable gain
Exempt
Gain of £1,100 on the sale of an antique chair. The chair originally cost £5,000.

Chargeable gain
Exempt

Answer 73

Feedback: Sub 1:
B Exempt

The snake is a wasting asset which is an exempt asset unless it was used in the business and was eligible for capital allowances.

C Chargeable gain

The chair is a non-wasting asset which is chargeable. As it was not bought and sold for less than £6,000 (sales proceeds must exceed £6,000 for the level of gain), it is chargeable subject to the chattel rules.

LO 4a

Sub 1
Available Answers
Exempt (Correct)
Sub 2
Available Answers
Chargeable gain (Correct)

Question 74

Party Ltd purchased a building for investment purposes in January 2018 for £150,000. The property was redecorated at a cost of £24,000 and the single glazed windows were replaced with double glazing costing £40,000 in December 2018. The company sold the building in September 2021 for £425,000.

What is the gain in Party Ltd’s corporation tax computation for the year ended 31 December 2021?

£275,000
£211,000
£251,000
£235,000

Answer 74

Feedback:
A £275,000

£

Sale proceeds 425,000
Cost (150,000)
Chargeable gain 275,000
The redecoration and glazing costs are both revenue in nature and therefore would have been deductible from Party Ltd’s trading profits in 2018.

LO 4b

Available Answers
£275,000 (2 Marks)

Question 75

On 1 January 2022 Anna sold an office building for £500,000 before paying legal fees of £24,700. She had bought the building for £280,000 in July 2010.

Anna made no other disposals of chargeable assets during 2021/22. She had taxable income of £26,700 in 2021/22 after deduction of her personal allowance.

What is Anna’s capital gains tax liability for 2021/22?

£35,500
£37,960
£34,243
£36,600

Answer 75

Available Answers
£35,500 (2 Marks)

Question 76

David and Doreen started in partnership together on 1 July 2021 sharing profits in the ratio 2:1. The partnership taxable trading profit for the year ended 30 June 2022 is £120,000.

What is the amount of trading profits taxable on Doreen in 2021/22?

£80,000
£60,000
£40,000
£30,000

Answer 76

1 July 2022 to 5 April 2023

9/12 × £40,000 = £30,000

LO 3f, 3g

Available Answers
£30,000 (2 Marks)

Question 77

Alex is a sole trader. He has plant and machinery with a tax written down value of £560 on 1 April 2022. During the nine-month accounting period to 31 December 2022, he purchased a computer for £8,000.

What are the maximum amount of capital allowances available to Alex for the nine months ended 31 December 2022?

£8,560
£8,076
£1,541
£1,156

Answer 77

As the small pool is less than the pro-rated minimum balance of £750, it may be written off in full.

LO 3e

Available Answers
£8,560 (2 Marks)

Question 78

Talia submitted her VAT return for the quarter to 31 December 2021 online on 16 February 2022 and paid the VAT due of £10,000 on that day. She had paid VAT late in respect of the previous two quarters but had otherwise paid VAT and filed VAT returns on time.

Talia’s default surcharge for the return for the quarter to 31 December 2021 is:

£0
£200
£500
£1,000

Answer 78

Feedback:
C £500

The original default led to a surcharge liability notice but no surcharge. The next default would have given rise to a surcharge at 2%. The VAT payment is late for this quarter (due 7 February 2022), and so there is another default with a surcharge at 5% (£500).

LO 2e

Available Answers
£500 (2 Marks)

Question 79

Ebony plc submitted its corporation tax return for its year ended 31 August 2020 on 1 July 2022. Ebony plc paid the corporation tax liability relating to this return on 1 April 2022. Ebony plc has submitted previous corporation tax returns on time.

What is the fixed penalty for failing to file its corporation tax return on time?

£100
£200
What is the tax-geared penalty for failing to file its corporation tax return on time?

10% of tax unpaid at 29 February 2021
20% of tax unpaid at 29 February 2021

Answer 79

Feedback: Sub1:
B £200

The return should have been filed within 12 months of the end of the accounting period, ie, 31 August 2022. As the return is more than three months late, there is a fixed penalty of £200.

C 10% of tax unpaid at 28 February 2023

There is also a tax-geared penalty as the return was submitted more than 18 months but less than 24 months after the end of the return period and tax was outstanding at the 18 month point. The penalty is 10% of the unpaid tax.

LO 2e

Sub1
Available Answers
£200 (Correct)
Sub2
Available Answers
10% of tax unpaid at 29 February 2021 (Correct)

Question 80

Glitch plc’s VAT returns have always been accurate, but the return to 31 December 2021 contains an error. Turnover is correctly stated at £5.6 million, but input tax is overstated by £52,700.

Which of the following statements is correct?

A correction can be made in the next VAT return because the error is less than 1% of turnover.
A correction cannot be made in the next VAT return because the error exceeds £2,000.
A correction cannot be made in the next VAT return because the error exceeds £10,000.
A correction cannot be made in the next VAT return because the error exceeds £50,000.

Answer 80

Feedback:
A A late payment penalty of 2% of £250,000

E Late payment interest on £50,000 for 20 days and on £200,000 for 70 days

As Old Ltd did not apply for the TTP arrangement until the VAT was 20 days overdue, the first late payment penalty will apply to the amount outstanding at Day 16 (£250,000). No further penalty will arise in respect of the £200,000 outstanding at Day 30 as the TTP arrangement had been applied for by then (and was subsequently agreed).

Interest applies to late paid VAT irrespective of the existence of a TTP arrangement.

Available Answers
A correction cannot be made in the next VAT return because the error exceeds £50,000. (2 Marks)

Question 81

Martha filed her 2020/21 tax return online on 5 January 2022. On 31 March 2022 HMRC amended the return to show additional tax due of £1,500. Martha paid the tax on 15 May 2022.

Which of the following statements are true?

Interest will run on the additional liability of £1,500 from 1 April 2022 to 14 May 2022.

True
False
A late payment penalty of £75 is payable by Martha.

True
False

Answer 81

Feedback: Sub 1:
B False

Interest runs from the due payment date (31 January 2023 for 2021/22) until the day before the tax is paid. The first statement is therefore not true.

C True

A penalty of £75, being 5% of £1,500, will apply to the additional tax arising. The second statement is therefore true.

LO 2e

Sub 1
Available Answers
False (Correct)
Sub 2
Available Answers
True (Correct)

Question 82

Which two of the following statements are correct?

✓Amy’s VAT return for the quarter to 28 February 2022 should have been submitted by 30 March 2022.
✓Bob & Charles’s partnership income tax return for 2021/22 received on 3 November 2022 should be submitted online by 31 January 2023.
✓Daniel’s full income tax return for 2021/22 received on 4 July 2022 should be submitted to HMRC by 31 October 2022, if he submits a paper return.
✓Eagle Ltd’s corporation tax return for the year ended 31 December 2021 should be submitted by 1 October 2022.
✓Frank Ltd’s P11Ds for 2021/22 should be submitted to HMRC by 6 July 2022.

Answer 82

Feedback:
C Daniel’s full income tax return for 2022/23 received on 4 July 2023 should be submitted to HMRC by 31 October 2023, if he submits a paper return.

E Frank Ltd’s P11Ds for 2022/23 should be submitted to HMRC by 6 July 2023.

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 2023.

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 2024.

Eagle Ltd has one year from the end of the period of account to submit its corporation tax return, ie, by 31 December 2023.

LO 2d

Available Answers
Daniel’s full income tax return for 2021/22 received on 4 July 2022 should be submitted to HMRC by 31 October 2022, if he submits a paper return. (Correct)
Frank Ltd’s P11Ds for 2021/22 should be submitted to HMRC by 6 July 2022. (Correct)

Question 83

Dana has total income of £51,000 each year. She has underpaid tax of £1,400 in 2019/20 which is recovered through her PAYE code in 2021/22.

What is Dana’s PAYE code for 2021/22?

557L
907L
1117L
1257L

Answer 83

907L (2 Marks)

higher tax payer so 1400*100/40!!!!!

Question 84

Edward is an employee of Theatre Ltd with an annual salary of £66,000. In addition, Edward has run his own business for a number of years with an average annual profit of about £25,000.

What is the end of the statutory retention period for Edward’s records relating to the tax year ended 5 April 2022?

31 January 2027
31 January 2028
James is an employee of Stage Ltd with an annual salary of £45,000. He also owns a number of shares on which he receives dividend income in excess of £10,000 per year.

What is the end of the statutory retention period for James’s records relating to the tax year ended 5 April 2022?

31 January 2024
31 January 2025

Answer 84

Feedback: Sub 1:
B 31 January 2029
C 31 January 2025

Because he has a business, Edward must keep records (of whatever nature) for his 2022/23 tax return until 31 January 2029. Records where a taxpayer has a business must be kept for five years from the 31 January following the end of the tax year to which they relate.

Where a taxpayer is not in business (ie, the records are purely personal), the records must be kept for one year from the 31 January following the end of the tax year to which they relate, ie, 31 January 2025.

LO 2a

Sub 1
Available Answers
31 January 2028 (Correct)
Sub 2
Available Answers
31 January 2024 (Correct)

Question 85

One argument proposed in debates about taxation, is that the cost of collecting tax should be low in relation to the tax raised.

The principle behind this argument is the

✓ability to pay principle
✓efficiency principle
VAT is an example of

✓direct taxation
✓indirect taxation

Answer 85

Feedback: Sub 1:
B Efficiency principle

The efficiency principle is concerned with the cost (to a government) of collection of tax being low in relation to the tax raised. The ability to pay principle is concerned with the ability of the taxpayer to pay the tax.

D Indirect taxation

VAT is a form of indirect taxation.

LO 1b

Sub 1
Available Answers
efficiency principle (Correct)
Sub 2
Available Answers
indirect taxation (Correct)

Question 86

Sandra, a chartered accountant, is completing the corporation tax computation for a client company. She realises that the client company’s sales director, Heather, is a close family friend. Heather asks Sandra whether she has seen any information from the Financial Director about any planned bonuses.

Which two of the fundamental principles of the IESBA Code of Ethics may be under threat here?

✓Objectivity
✓Integrity
✓Professional behaviour
✓Confidentiality

Answer 86

Feedback:
A Objectivity

D Confidentiality

Sandra may be biased in her dealings with the company because of her relationship with Heather, and this threatens objectivity.

Sandra may acquire information in her work which may be to Heather’s advantage, but she must respect the confidentiality of such information.

LO 1g

Available Answers
Objectivity (Correct)
Confidentiality (Correct)

Question 87

Identify in the following scenarios whether the professional accountant is committing an offence under the anti-money laundering legislation.

Requirements

Steven accepts payment from a client in relation to work performed in preparing his personal tax return. The fee is a percentage of the reduction in the tax payable based on the previous year. Steven strongly suspects that the client has failed to disclose all sources of income. He later discovers this to be the case

Offence committed by Steven
No offence committed by Steven
Trevor suspected that a client of his has been receiving income through the operation of a criminal cartel. He reported this to his firm’s Money Laundering Reporting Officer (MLRO), but has not heard anything else from the MLRO. Trevor later approaches the client to advise him of his suspicions and that the firm may have to report this to the authorities.

Offence committed by Trevor
No offence committed by Trevor

Answer 87

Feedback:
B Self-review threat

LO 1g

Available Answers
Offence committed by Steven (1 Mark)
Available Answers
No offence committed by Trevor (1 Mark)

Question 88

Toby is a sole trader.

Requirement

Which of the following actions by Toby is not an example of tax evasion?

Claiming £2,000 of personal expenses through the business
Understating cash sales by £500
Deliberately postponing the sale of some shares from 5 April until 6 April so that he can use the following year’s annual exempt amount to reduce his capital gains tax
Overestimating the value of some property donated to charity

Answer 88

Feedback:
C Deliberately postponing the sale of some shares from 5 April until 6 April so that he can use the following year’s annual exempt amount to reduce his capital gains tax

This is an example of legitimate tax planning so is tax avoidance. The others are all examples of tax evasion.

LO 1h

Available Answers
Deliberately postponing the sale of some shares from 5 April until 6 April so that he can use the following year’s annual exempt amount to reduce his capital gains tax (2 Marks)

Question 89

Ming-Na began trading as a sole trader on 1 September 2021 preparing her first set of accounts for the nine months ended 31 May 2022.

On 1 November 2021 Ming-Na purchased a car with emissions of 40 g/km for £18,000. She uses this 60% for business purposes.

Requirement

What are the maximum capital allowances available for the car for the nine months ended 31 May 2022?

Answer 89

Available Answers
1458 (2 Marks)

Question 90

John started trading on 1 January 2020, but his business quickly ran into cash flow problems and he ceased to trade on 28 February 2022. The accounts for the year ended 31 December 2020 showed taxable trading profits of £6,000, and those for the period from 1 January 2021 to 28 February 2022 showed taxable trading profits of £2,800.

Requirement

What is John’s taxable trading profit for 2021/22?

£2,800
£2,400
£1,300
£900

Answer 90

Feedback:
C £1,300

First tax year (2019/20)

Actual basis

Basis period 1 January 2020 to 5 April 2020

3/12 × £6,000 = £1,500

Second tax year (2020/21)

12 month period ending in the tax year

Basis period 1 January 2020 to 31 December 2020

Year ended 31 December 2020 = £6,000

Overlap profits

1 January 2020 to 5 April 2020 = £1,500

Question 91

Jabir and Kadin began trading in partnership on 1 September 2021, sharing profits equally. The partnership agreement allocates an annual salary to Jabir of £8,000. For the year ended 31 August 2022 the partnership had a tax-adjusted trading profit of £105,000.

Requirement

What are the partners’ assessable trading profits for 2021/22?

Jabir £56,500; Kadin £48,500
Jabir £32,958; Kadin £28,292
Jabir £60,500; Kadin £52,500
Jabir £35,292; Kadin £30,625

Answer 91

Available Answers
Jabir £32,958; Kadin £28,292 (2 Marks)

Question 92

During 2021/22 Ball Ltd pays Lena, one of its 25 employees, a salary of £39,067. The company provides her with a car that has a cash-equivalent benefit of £5,000 and supermarket vouchers which cost the company £500 pa.

Requirement

What are the Class 1A contributions payable by Ball Ltd in 2021/22 in respect of Lena?

Answer 92

Available Answers
690 (2 Marks)

Question 93

Freddy made two disposals during 2021/22.

For each of the two disposals select how the resulting gains should be treated to determine Freddy’s total chargeable gains for 2021/22.

Requirements

Gain of £4,500 on the disposal of a caravan.

Chargeable gain
Exempt
Gain of £1,000 on the sale of a sculpture. The sculpture originally cost £4,000.

Chargeable gain
Exempt

Answer 93

Sub 1
Available Answers
Exempt (Correct)
Sub 2
Available Answers
Exempt (Correct)

Question 94

Pumpkin Ltd purchased a plot of land in August 2018 for £60,000, incurring legal fees of £3,000 on acquisition. Work to improve drainage was carried out on the land in 2019 at a cost of £25,000. The company sold the land in November 2021 for proceeds of £80,000, incurring selling costs of £1,750.

Requirement

What is the chargeable gain or allowable loss on the disposal?

(£9,750)
£15,250
£(8,000)
£(6,750)

Answer 94

As the small pool is less than the pro-rated minimum balance of £750, it may be written off in full.

LO 3e

Available Answers
(£9,750) (2 Marks)

Question 95

Lam Ltd began trading on 1 February 2020 and had the following periods of account:

• 1 February 2020 to 31 July 2021
• 1 August 2021 to 30 April 2022 (when the trade ceased)

Requirement

Its first corporation tax accounting period was

1 February 2020 to 31 July 2020
1 February 2020 to 31 January 2021
1 February 2020 to 30 April 2021
1 February 2020 to 31 July 2021

Answer 95

Available Answers
1 February 2020 to 31 January 2021 (2 Marks)

Question 96

Camilla began trading in January 2021. Camilla’s profit for the year ended 31 December 2021 was £56,000. She has not informed HMRC that she has begun to trade and has never been issued with or completed a self-assessment return.

Requirement

What is the latest date by which Camilla should have contacted HMRC to obtain a self-assessment return?

5 October 2021
31 October 2021
31 January 2022
5 October 2022

Answer 96

Available Answers
5 October 2021 (2 Marks)

Question 97

Harry’s total income tax liability for 2020/21 was £15,000 and his Class 4 NIC liability was £2,000. During 2020/21 £6,000 of his income tax liability was paid via tax deducted at source. Harry’s capital gains tax liability for 2020/21 was £2,500.

Requirement

What is Harry’s first payment on account for 2021/22?

Answer 97

Available Answers
5,500 (2 Marks)

Question 98

Kurt had an income tax liability of £9,500 and a capital gains tax liability of £2,300 for 2020/21. The tax payable under self-assessment for 2019/20 was £8,000.

Kurt has made the following payments towards his 2020/21 tax liability.

What late payment penalties are payable by Kurt relating to his 2020/21 liability?

£365
£190
£380
£590

Answer 98

LO 6d

Available Answers
£190 (2 Marks)

Question 99

Asha received trading income of £60,000 in 2021/22. She also received property income of £700 per month from an investment property she has owned for many years. On 10 September 2022 Asha submitted her self-assessment tax return for 2021/22.

Requirements

By when must Asha pay the balancing payment of tax due for 2021/22?

31 January 2023
10 June 2023
10 September 2023
31 January 2024
By when must HMRC correct any obvious errors in Asha’s 2021/22 return?

31 January 2023
10 June 2023
10 September 2023
31 January 2024

Answer 99

Feedback: q1:
A 31 January 2023

The balancing payment is due by the 31 January following the tax year, ie, 31 January 2023.

F 10 June 2023

HMRC may amend the return up to nine months from its actual filing, ie, until 10 June 2023.

LO 2c, 2d

q1
Available Answers
31 January 2023 (Correct)
q2
Available Answers
10 June 2023 (Correct)

Question 100

A notice to submit a 2021/22 tax return was issued to Laura on 30 November 2022. When must Laura file the return by if:

Requirements

She intends to submit a paper return?

31 October 2022
31 January 2023
28 February 2023
She intends to submit the return online?

31 October 2022
31 January 2023
28 February 2023

Answer 100

Feedback: q1:
C 28 February 2023

The normal due date for filing a paper return is 31 October following the end of the tax year. However, where the notice to make a return is issued after 31 July following the end of the tax year, the deadline is extended to three months after the issue of the notice ie, 28 February 2023.

F 28 February 2023

The due date for filing online is 31 January following the end of the tax year or three months after the issue of the notice, ie, 28 February 2023.

q1
Available Answers
28 February 2023 (Correct)
q2
Available Answers
28 February 2023 (Correct)

Question 101

Blunt Ltd manufactures stationery and has prepared its corporation tax return for the year ended 31 March 2022.

Jim is a sole trader. He has been a retailer of stationery for many years and has just finished preparing his accounts to 31 December 2021.

What is the latest date for which Blunt Ltd and Jim must keep their business records for tax purposes?

Requirements

Blunt Ltd:

31 March 2023
31 March 2027
31 March 2028
Jim:

31 January 2023
31 January 2028
31 January 2029

Answer 101

Feedback: Q1:
C 31 March 2028

E 31 January 2028

A company must keep its records for six years from the end of the accounting period. An individual must keep their business records for five years from 31 January following the tax year.

LO 2a

Q1
Available Answers
31 March 2028 (Correct)
Q2
Available Answers
31 January 2028 (Correct)