Publishing 2013 ACCA F6 (UK) Taxation FA12 Exam Kit emilewoolfpublishing.com   KIT ACCA EXAM Paper F6   Taxation FA2012 (UK)                                                               Publishing     Sixth edition published by   Emile Woolf Publishing Limited  Crowthorne Enterprise Centre, Crowthorne Business Estate, Old Wokingham Road,   Crowthorne, Berkshire   RG45 6AW  Email: info@ewiglobal.com  www.emilewoolfpublishing.com       © Emile Woolf Publishing Limited, January 2013    All rights reserved. No part of this publication may be reproduced, stored in a retrieval  system, or transmitted, in any form or by any means, electronic, mechanical, photocopying,  recording, scanning or otherwise, without the prior permission in writing of Emile Woolf  Publishing Limited, or as expressly permitted by law, or under the terms agreed with the  appropriate reprographics rights organisation.    You must not circulate this book in any other binding or cover and you must impose  the same condition on any acquirer.      Notice  Emile Woolf Publishing Limited has made every effort to ensure that at the time of  writing the contents of this study text are accurate, but neither Emile Woolf Publishing  Limited nor its directors or employees shall be under any liability whatsoever for any  inaccurate or misleading information this work could contain.      British Library Cataloguing in Publications Data  A catalogue record for this book is available from the British Library.      ISBN: 978‐1‐84843‐280‐2      Printed and bound in Great Britain.        Acknowledgements  The syllabus, study guide, exam questions and answers (where indicated) are  reproduced by kind permission of the Association of Chartered Certified Accountants.          ii © Emile Woolf Publishing Limited   Paper F6 (UK) Taxation FA2012 c       Contents     Page  Questions and answers index   v Syllabus and exam format  ix  Exam techniques  Tax rates and allowances  xxv  xxvii    Section   1   Practice questions  Income tax    1  1  Income tax losses  17  Partnerships   20  Capital gains tax  26  Inheritance tax  33  Corporation tax    35  Corporation tax losses  43  Chargeable gains  53  Groups of companies  56  Overseas aspects of corporation tax  59  Value added tax   63  Self assessment   67  2   Answers to practice questions  71  Income tax    71  Income tax losses  93  Partnerships   97  © Emile Woolf Publishing Limited iii     Page  Capital gains tax  104  Inheritance tax  116  Corporation tax    121  Corporation tax losses  130  Chargeable gains  140  Groups of companies  145  Overseas aspects of corporation tax  148  Value added tax   153  Self assessment   158  3    Mock exam questions  163  4    Answers to mock exam questions  169    iv © Emile Woolf Publishing Limited Paper F6 (UK) Taxation FA 2012 i       Questions and answers index Question page Answer page Exam Income tax Edmond Brick  1  71  ACCA F6 Dec 2007 (amended)  Peter Chic  2  72  ACCA F6 Dec 2008 (amended)  Sammi Smith   4  74  ACCA F6 Dec  2010 (amended)  Firstly plc  4  75  ACCA F6 Dec 2010 (amended)  William Wong   6  77  ACCA 2.3 Dec 2005 (amended)  Andrew Zoom  7  79  ACCA F6 June 2009 (amended)  Simon House   8  80  ACCA F6 Dec 2009 (amended)  Na Style   9  81  ACCA F6 Dec 2009 (amended)  Domingo, Erigo and Fargo   10  83  ACCA F6 June 2009 (amended)  10 Vanessa and Serene  12  86  ACCA F6 Dec 2007 (amended)  11 Sam and Kim White  13  88  ACCA F6 June 2008 (amended)  12 Ann Peach  15  90  ACCA F6 Dec 2008 (amended)  13 Nui Neu  16  92  ACCA 2.3 June 2005 (amended)  Income tax losses 14 Dee Zyne   17  93  ACCA 2.3 June 2005 (amended)  15 Samantha Fabrique  18  95  ACCA F6 Dec 2007 (amended)  16 Goff Green  19  96  ACCA F6 Dec 2010 (amended)  Partnerships19 17 Ae, Bee, Cae  20  97  ACCA F6 Dec 2008 (amended)  18 Peter, Quinton and Roger  21  99  ACCA 2.3 June 2002 (amended)  19 Auy Man and Bim Men   22  100  ACCA F6 June 2010 (amended)  © Emile Woolf Publishing Limited v Paper F6 (UK): Taxation FA2012 20 Xio, Yana and Zoe  Question page Answer page 24  102  ACCA 2.3 Dec 2004 (amended)  Exam Capital gains tax 21 David and Angela Brook  26  104  ACCA F6 Dec 2007 (amended)  22 Wilson Biazma  27  105  ACCA F6 June 2008 (amended)  23 Nim and Mae Lom  28  107  ACCA F6 June 2009 (amended)  24 Amanda Moon  29  109  ACCA F6 Dec 2009 (amended)  25 Michael Chin   30  110  ACCA 2.3 June 2005 (amended)  26 Sophia Tang  31  112  ACCA 2.3 Dec 2005 (amended)  27 Lim Lam   31  113  ACCA F6 Dec 2010 (amended)  28 Nui Lee  32  115  ACCA 2.3 June 2003 (amended)  Inheritance tax 29 Alex Reader  33  116  ACCA 3.2 Pilot (amended)  30 Henry Major  34  118  ACCA 3.2 Dec 2003 (amended)  31 Debbie Morgan  35  119  ACCA 3.2 Jun 2005 (amended)  Corporation tax 32 Gastron Ltd  35  121  ACCA F6 June 2009 (amended)  33 Do‐Not‐Panic Ltd  38  123  ACCA F6 June 2008 (amended)  34 Stretched Ltd  39  125  ACCA 2.3 June 2005 (amended)  35 Wireless Ltd  39  126  ACCA F6 June 2008 (amended)  36 Crash‐Bash Ltd   41  128  ACCA F6 Dec 2010 (amended)  Corporation tax losses 37 Volatile Ltd   43  130  ACCA F6 Dec 2010 (amended)  38 Mice Ltd   44  132  ACCA F6 June 2010 (amended)  39 Jogger Ltd  46  134  ACCA F6 Dec 2008 (amended)  40 Sofa Ltd  48  136  ACCA F6 Dec 2007 (amended)  41 Spacious Ltd  51  138  ACCA 2.3 Dec 2003 (amended)  Chargeable gains 42 Problematic Ltd   53  140  ACCA F6 June 2009 (amended)  43 Astute Ltd  54  141  ACCA 2.3 Dec 2001 (amended)  44 Hawk Ltd  55  142  ACCA F6 Dec 2008 (amended)  45 Earth Ltd  56  144  ACCA 2.3 June 2003 (amended)  Group of companies vi 46 Red and White  56  145  ACCA 2.3 Dec 2001 (amended)  47 Animal Ltd   57  146  ACCA 2.3 June 2003 (amended)  48 Music plc   58  147  ACCA 2.3 Dec 2005 (amended)  © Emile Woolf Publishing Limited Index to questions and answers Question page Answer page Exam Overseas aspects of corporation tax 49 Wash plc   59  148  ACCA 2.3 June 2002 (amended)  50 Sirius Ltd  60  150  ACCA 2.3 Dec 2003 (amended)  51 Neung Ltd   60  151  ACCA F6 Dec 2010 (amended)  Value added tax 52 Anne Attire  63  153  ACCA F6 June 2009 (amended)  52 Victor Style   64  154  ACCA 2.3 Dec 2004 (amended)  53 Astute, Bright and Clever  64  155  ACCA 2.3 June 2003 (amended)  54 Ram-Rom Ltd  65  156  ACCA 2.3 Dec 2005 (amended)  55 Sandy Brick  66  157  ACCA 2.3 June 2004 (amended)  Self assessment 56 Vera Old   67  158  ACCA 2.3 June 2005 (amended)  57 Pi Casso  68  159  ACCA F6 June 2008 (amended)  58 Ernest Vader   69  160  ACCA F6 June 2010 (amended)  59 Quagmire plc   69  161  ACCA F6 June 2010 (amended)  © Emile Woolf Publishing Limited vii Paper F6 (UK): Taxation FA2012 viii © Emile Woolf Publishing Limited Section 3: Mock exam questions £ Entertaining employees Gifts to customers (diaries costing £25 each displaying Scuba Ltd’s name) Gifts to customers (food hampers costing £80 each) 2,470 1,350 1,600 Leasehold property On April 2012 Scuba Ltd acquired a leasehold office building that is used for business purposes The company paid a premium of £80,000 for the grant of a twenty-year lease Plant and machinery On January 2012 the tax written down value of plant and machinery in the main pool was £47,200 The following transactions took place during the year ended 31 December 2012: Cost/(Proceeds) £ January 2012 29 February 2012 May 2012 18 August 2012 15 November 2012 Purchased machinery Purchased a computer Purchased a motor car Purchased machinery Sold a lorry 22,800 1,100 10,400 7,300 (12,400) The company wishes to treat the computer as a short-life asset The motor car purchased on May 2012 for £10,400 has CO2 emissions of 143 g/km It is used by the factory manager, and 40% of the mileage is for private journeys The lorry sold on 15 November 2012 for £12,400 originally cost £19,800 Property income Scuba Ltd lets a retail shop that is surplus to requirements The shop was let until 31 December 2011 but was then empty from January 2012 to 30 April 2012 During this period Scuba Ltd spent £6,200 on decorating the shop, and £1,430 on advertising for new tenants The shop was let from May 2012 to 31 December 2012 at a quarterly rent of £7,200, payable in advance Interest received Interest of £430 was received from HM Revenue & Customs on 31 October 2012 in respect of the overpayment of corporation tax for the year ended 31 December 2011 Other information Scuba Ltd has no associated companies, and the company has always had an accounting date of 31 December Required: (i) Compute Scuba Ltd’s tax adjusted trading profit for the year ended 31 December 2012 You should ignore value added tax (VAT) (11 marks) © Emile Woolf Publishing Limited 165 Paper F6 (UK): Taxation FA2012   (ii) Compute Scuba Ltd’s corporation tax liability for the year ended 31 December 2012 (5 marks) (iii)  State  the  date  by  which  Scuba  Ltd  must  make  a  claim  to  treat  the  new  computer as a short‐life asset.   (1 mark)  (iv)  Advise  Scuba  Ltd  of  the  documents  that  must  be  submitted  with  its  corporation tax return and the form that these documents must take.   (2 marks)      (b) Scuba Ltd registered for value added tax (VAT) on April 2010 The company’s VAT returns have been submitted as follows: Quarter ended VAT paid/(refunded) Submitted £ 30 June 2010 30 September 2010 31 December 2010 31 March 2011 30 June 2011 30 September 2011 31 December 2011 31 March 2012 30 June 2012 30 September 2012 31 December 2012 18,600 32,200 8,800 3,400 (6,500) 42,100 (2,900) 3,900 18,800 57,300 9,600 One month late One month late On time Two months late One month late On time On time On time On time Two months late On time Scuba Ltd always pays any VAT that is due at the same time that the related return is submitted During February 2013 Scuba Ltd discovered that a number of errors had been made when completing its VAT return for the quarter ended 31 December 2012 As a result of these errors the company will have to make an additional payment of VAT to HM Revenue & Customs Required: (i) State, giving appropriate reasons, the default surcharge consequences arising from Scuba Ltd’s submission of its VAT returns for the quarter ended 30 June 2010 to the quarter ended 30 September 2012 inclusive (8 marks) (ii) Explain how Scuba Ltd can voluntarily disclose the errors relating to the VAT return for the quarter ended 31 December 2012, and state whether default interest will be due, if (1) the net errors in total are less than £10,000, and (2) the net errors in total are more than £10,000 (3 marks) (Total: 30 marks) Paul Opus disposed of the following assets during the tax year 2012-13: (1) 166  On 10 April 2012 Paul sold 10,000 £1 ordinary shares in Symphony Ltd, an unquoted trading company, for £47,200 He had originally purchased 40,000 shares in the company on 23 August 2011 for £110,400 He purchased a further 5,000 on 25 April 2012 for £20,000 The shareholding is less than 2% of Symphony Ltd’s issued share capital, and Paul has never been employed by Symphony Ltd © Emile Woolf Publishing Limited Section 3: Mock exam questions (2) On 15 July 2012 Paul made a gift of his entire shareholding of 10,000 £1 ordinary shares in Concerto plc to his daughter On that date the shares were quoted on the Stock Exchange at £5.10–£5.18, with recorded bargains of £5.00, £5.15 and £5.22 Paul’s shareholding had been purchased on 29 April 1996 for £14,000 The shareholding is less than 1% of Concerto plc’s issued share capital, and Paul has never been employed by Concerto plc (3) On 31 December 2012 Paul sold a house for £220,000 The house had been purchased on April 2006 for £114,700 Paul occupied the house as his main residence from the date of purchase until 30 June 2009 The house was then unoccupied until it was sold on 31 December 2012 (4) On 16 February 2013 Paul sold three acres of land for £285,000 He had originally purchased four acres of land on 17 July 2009 for £220,000 The market value of the unsold acre of land as at 16 February 2013 was £90,000 (5) On March 2013 Paul sold a freehold holiday cottage for £125,000 The cottage had originally been purchased on 28 July 2010 for £101,600 by Paul’s wife She transferred the cottage to Paul on 16 November 2012 when it was valued at £114,800 Paul’s taxable income for the tax year 2012-13 is £15,800 Required: Compute Paul’s capital gains tax liability for the tax year 2012-13, and advise him by when this should be paid (15 marks) Li Fung commenced in self-employment on October 2008 She initially prepared accounts to 30 June, but changed her accounting date to 31 March by preparing accounts for the nine-month period to 31 March 2012 Li’s trading profits since she commenced self-employment have been as follows: Nine-month period ended 30 June 2009 Year ended 30 June 2010 Year ended 30 June 2011 Nine-month period ended 31 March 2012 Year ended 31 March 2013 £ 18,600 24,900 22,200 16,800 26,400 Required: (a) State the qualifying conditions that must be met for a change of accounting date to be valid (3 marks) (b) Compute Li’s trading income assessments for each of the five tax years 2008–09, 2009–10, 2010-11, 2011-12 and 2012-13 (9 marks) (c) Advise Li of the advantages and disadvantages for tax purposes of changing her accounting date from 30 June to 31 March (3 marks) (Total: 15 marks) (a) Loser Ltd’s results for the year ended 30 June 2010, the nine month period ended 31 March 2011, the year ended 31 March 2012 and the year ended 31 March 2013 are as follows: © Emile Woolf Publishing Limited 167 Paper F6 (UK): Taxation FA2012   Year ended 30 June 2010 Trading profit/(loss) Property business profit Qualifying charitable donations Period ended 31 March 2011 £ 86,600 – (1,400) £ (25,700) 4,500 (800) Year ended 31 March 2012 Year ended 31 March 2013 £ 7,300 8,100 £ (78,300) 5,600 (1,200) (1,100) Loser Ltd does not have any associated companies Required: (b)  (i) State the factors that will influence a company’s choice of loss relief claims You are not expected to consider group relief (3 marks) (ii) Assuming that Loser Ltd claims relief for its losses as early as possible, compute the company’s taxable total profits for the year ended 30 June 2010, the nine month period ended 31 March 2011, the year ended 31 March 2012 and the year ended 31 March 2013 Your answer should clearly identify the amount of any losses that are unrelieved (5 marks) (iii) Explain how your answer to (ii) above would have differed if Loser Ltd had ceased trading on 31 March 2013 (2 marks) On  3  February  2013,  Lucy  Lucky  made  a  gift  of  1,000  £1  ordinary  shares  in  Luctastic  Ltd,  an  unquoted  investment  company,  to  a  trust.  Lucy  paid  the  inheritance tax arising from this gift.     Before the transfer Lucy owned 3,000 out of Luctastic Ltd’s issued share capital of  5,000 £1 ordinary shares. On 3 February 2013, Luctastic Ltd’s shares were worth:    Shareholding  Value per share  0‐20%  £200  21‐40%  £300  41‐60%  £400  61‐80%  £500  81‐100%  £600  Lucy has not made any previous gifts.   Required:  Calculate the inheritance tax payable as a result of Lucy’s gift to the trust and the  additional  inheritance  tax  that  would  be  payable  if  Lucy  were  to  die  on  30  January 2016.   Note: You should ignore annual exemptions and should assume that the nil rate  band for the tax year 2012‐13 remains unchanged.   (5 marks)  (Total: 15 marks) 168  © Emile Woolf Publishing Limited SECTION Paper F6 (UK) Taxation FA2012  Q&A       Answers to mock exam questions     (a) Mark Kett – Income tax computation 2012-13 £ Trading profit Capital allowances (balancing charge) Employment income Salary (3,250 x 3) Beneficial loan Staff canteen Mileage claim Property business profit Interest from government stocks Dividends (2,880 × 100/90) Individual savings account interest Premium bond prize Personal allowance Taxable income Income tax 34,600 (37,800 – 3,200) at 20% 770 (35,370 – 34,600) at 10% 2,430 (3,200 – 770) at 32.5% Income tax liability © Emile Woolf Publishing Limited 9,750 1,250 – ‒‒‒‒‒‒‒ 11,000 (725) ‒‒‒‒‒‒‒ £ 21,800 1,420 ‒‒‒‒‒‒‒ 23,220 10,275 7,310 1,900 3,200 – – ‒‒‒‒‒‒‒ 45,905 (8,105) ‒‒‒‒‒‒‒ 37,800 ‒‒‒‒‒‒‒ 6,920 77 790 –––––– 7,787 169 Paper F6 (UK): Taxation FA2012   £ Tax suffered at source PAYE (620 × 3) Dividends (3,200 at 10%) £ 1,860 320 –––––– Income tax payable (1) A balancing repayment of £5,774 (11,381 – 5,607) will be due for 2012-13 (2) Capital allowances are as follows: WDV brought forward Addition Disposals Balancing charge Balancing allowance Pool Motor car Allowances £ £ £ 13,800 1,900 –––––– 15,700 (18,800) –––––– (3,100) –––––– 14,600 (11,800) –––––– (3,100) 1,680 2,800 × 60% –––––– –––––– (1,420) –––––– (3) The taxable benefit from the beneficial loan is £1,250 (125,000 at 4% x 3/12) (4) The provision of meals in a staff canteen does not give rise to a taxable benefit (5) The mileage allowance received will be tax-free (6) Mark can make the following claim for tax relief in respect of his mileage: 2,500 miles at 45p Mileage allowance 2,500 at 16p (7) £ 1,125 (400) –––––– 725 –––––– The property business profit is calculated as follows: £ Rent receivable Agency fees (8,600 at 5%) Wear and tear allowance (8,600 at 10%) Property business profit 170  (2,180) –––––– 5,607 –––––– £ 8,600 430 860 –––––– (1,290) –––––– 7,310 –––––– (8) No deduction is available for furniture and furnishings where the wear and tear is claimed (9) Mark’s property income from the rent of his spare room is less than £4,250 (350 x = £3,150), and it is therefore exempt under the rent-a-room scheme © Emile Woolf Publishing Limited Section 4: Answers to mock exam questions (10) Interest from individual savings accounts and premium bond prizes are exempt from income tax (11) Mark’s basic rate tax band is extended by £1,000 (800 x 100/80) to £35,370 (34,370 + 1,000) as a result of making the gift aid donation (b) (a) (1) The business records relating to self-employment and property income must be retained until five years after the filing date, which is 31 January 2019 (2) As Mark is in business during 2012-13, all of his other records relating to employment and investment income must also be retained until the same date (3) A failure to retain records for 2012-13 can result in a penalty of up to £3,000 However, the maximum penalty will only be charged in serious cases (i) Scuba Ltd – Trading profit for the year ended 31 December 2012 Operating profit Depreciation and amortisation of lease Entertaining customers Entertaining employees Gifts to customers (diaries) Gifts to customers (hampers) Deduction for lease premium (working 1) Capital allowances – P & M (working 2) Trading profit £ 168,860 45,200 7,050 0 1,600 ‒‒‒‒‒‒‒‒ 222,710 (36,112) ‒‒‒‒‒‒‒‒ 186,598 ‒‒‒‒‒‒‒‒ £ 1,860 34,252 ‒‒‒‒‒‒‒‒ 36,112 ‒‒‒‒‒‒‒‒ Working – Deduction for lease premium The office building is used for business purposes, and so a proportion of the lease premium assessed on the landlord can be deducted The amount assessed on the landlord is £49,600 calculated as follows: Premium received Less: 80,000 × 2% × (20 – 1) £ 80,000 (30,400) ––––––– 49,600 ––––––– This is deductible over the life of the lease, starting from April 2012, so the deduction for the year ended 31 December 2012 is £1,860 (49,600/20 = 2,480 × 9/12) © Emile Woolf Publishing Limited 171 Paper F6 (UK): Taxation FA2012   Working – Plant and machinery Pool £ WDV brought forward Additions qualifying for AIA Machinery Computer Machinery AIA Short-life asset £ £ Allowances £ 47,200 22,800 1,100 7,300 ––––––– 31,200 (25,000) ––––––– Addition – motor car Proceeds WDA – 18% WDV carried forward 25,000 5,100 10,400 ––––––– 62,700 (12,400) ––––––– 50,300 (9,054) ––––––– 41,246 ––––––– 1,100 (198) ––––––– 902 ––––––– 9,252 ––––––– 34,252 ––––––– Tutorial notes (1) The cost of the lorry will have originally been added to the pool, so the disposal proceeds are now deducted (2) The private use of the motor car purchased on May 2012 is irrelevant, since such usage will be assessed on the employee as a benefit As it is not a low emission car, it does not qualify for a FYA (3) As the computer is being treated as a short life asset, it has not been allocated any of the AIA (ii) Corporation tax computation for the year ended 31 December 2012 Trading profit Property business profit (working) Interest TTP Corporation tax £198,598 x 20% £ 186,598 11,570 430 ––––––– 198,598 ––––––– 39,720 ––––––– Tutorial note The accounting period straddles two financial years, but the small profits rate of tax is the same for both years 172  © Emile Woolf Publishing Limited Section 4: Answers to mock exam questions Working – Property business profit £ Rent receivable (7,200/3 = 2,400 × 8) Decorating Advertisements Property business profit (iii)  (iv)  (b) 6,200 1,430 –––––– £ 19,200 (7,630) ––––––– 11,570 ––––––– An  election  to  treat  the  new  computer  as  a  short‐life  asset  must  be  made  within two years of the end of the accounting period, i.e. by 31 December  2014.   Scuba  Ltd  must  submit  supporting  tax  computations  and  a  copy  of  its  accounts  with  its  corporation  tax  return.  These  must  be  submitted  online  using inline eXtensible Business Reporting Language (iXBRL).  Default surcharge (1) The late submission of the VAT return for the quarter ended 30 June 2010 will have resulted in HM Revenue & Customs issuing a surcharge liability notice specifying a surcharge period running to 30 June 2011 (2) The late payment of VAT for the quarter ended 30 September 2010 will have resulted in a surcharge of £644 (32,200 × 2%) (3) The late payment of VAT for the quarter ended 31 March 2011 will have resulted in a surcharge of £170 (3,400 × 5%), but this will not have been collected as it was less than £400 (4) Although the VAT return for the quarter ended 30 June 2011 was submitted late, this will not have resulted in a surcharge as Scuba Ltd was due a refund for this period (5) The continued late submission of VAT returns will have resulted in the surcharge period being extended to 30 September 2011, then to 31 March 2012, and finally to 30 June 2012 (6) Scuba Ltd then submitted the four consecutive VAT returns during the surcharge period running to 30 June 2012 on time, and so will have reverted to a clean default surcharge record (7) The late submission of the VAT return for the quarter ended 30 September 2012 will therefore simply have resulted in a surcharge liability notice specifying a surcharge period running to 30 September 2013 Errors on VAT return (1) If the net errors total less than £10,000 then they can be voluntarily disclosed by simply entering them on the VAT return for the quarter ended 31 March 2013 (2) If the net errors total more than £10,000 then they can be voluntarily disclosed, but disclosure must be made separately to HM Revenue & Customs © Emile Woolf Publishing Limited 173 Paper F6 (UK): Taxation FA2012   (3) Default interest will be charged if the net errors total more than £10,000, but will not usually be charged if they are less than £10,000 (Note that the figure of 1% of turnover for the VAT period, up to a maximum of £50,000, is substituted for £10,000 if higher.) Paul Opus – CGT liability 2012-13 £ Ordinary shares in Symphony Ltd (W1) Shares acquired on 25 April 2012 Disposal proceeds (47,200 x 5,000/10,000) Cost Shares acquired on 23 August 2011 Disposal proceeds (47,200 x 5,000/10,000) Cost (110,400 × 5,000/40,000) Ordinary shares Concerto plc Deemed proceeds (10,000 × £5.11) (W2) Cost House Disposal proceeds Cost Principal private residence exemption (W3) Land Disposal proceeds Cost (W4) Holiday cottage Disposal proceeds Cost Chargeable gains Annual exempt amount Taxable gains Capital gains tax (34,370 – 15,800) = 18,570 at 18% (188,900 – 18,570) = 170,330 at 28% 174  23,600 (20,000) ‒‒‒‒‒‒‒‒‒ 23,600 (13,800) ‒‒‒‒‒‒‒‒‒ 51,100 (14,000) ‒‒‒‒‒‒‒‒‒ 220,000 (114,700) ‒‒‒‒‒‒‒‒‒ 105,300 (97,500) ‒‒‒‒‒‒‒‒‒ 285,000 (167,200) ‒‒‒‒‒‒‒‒‒ 125,000 (101,600) ‒‒‒‒‒‒‒‒‒ £ 3,600 9,800 37,100 7,800 117,800 23,400 ‒‒‒‒‒‒‒‒ 199,500 (10,600) ‒‒‒‒‒‒‒‒ 188,900 ‒‒‒‒‒‒‒‒ 3,343 47,692 ‒‒‒‒‒‒‒ 51,035 ‒‒‒‒‒‒‒ © Emile Woolf Publishing Limited Section 4: Answers to mock exam questions Due date 31 January 2014 Workings (a) (1) The disposal is firstly matched against the shares acquired in the following 30 days (2) The shares in Concerto plc are valued at the lower of £5.12 (£5.10 + ¼ (£5.18 – £5.10)) and £5.11 ((£5.00 + £5.22)/2) (3) The total period of ownership of the house is 81 months, of which a total of 75 months (period of occupation plus final 36 months) qualify for principal private residence relief The relief is therefore £97,500 (105,300 × 75/81) (4) The cost relating to the three acres of land sold is £167,200 (220,000 × 285,000/375,000 (285,000 + 90,000)) (5) The transfer of the holiday cottage between Paul and his wife is effectively ignored for CGT purposes, so the wife’s original cost is used in calculating Paul’s capital gain (1) The change of accounting date must be notified to HM Revenue & Customs by the 31 January following the tax year in which the change is made (2) The first accounts to the new accounting date must not exceed 18 months in length (3) There must not have been a change of accounting date within the preceding five tax years, although this does not apply if the present change is made for genuine commercial reasons (b) £ 2008-09 (1 October 2008 to April 2009) 18,600 × 6/9 2009-10 (1 October 2008 to 30 September 2009) 18,600 + 6,225 (24,900 × 3/12) 2010-11 (Year ended 30 June 2010) 2011-12 (1 July 2010 to 31 March 2012) Year ended 30 June 2011 Period ended 31 March 2012 Relief for overlap profits 12,400 + 6,225 2012-13 (Year ended 31 March 2013) 12,400 ‒‒‒‒‒‒‒ 24,825 ‒‒‒‒‒‒‒ 24,900 ‒‒‒‒‒‒‒ 22,200 16,800 ‒‒‒‒‒‒‒ 39,000 (18,625) ‒‒‒‒‒‒‒ 20,375 ‒‒‒‒‒‒‒ 26,400 ‒‒‒‒‒‒‒ Tutorial notes (1) The assessment for 2009-10 is the first twelve months of trading as the accounting date falling in that year is less than twelve months from the commencement of trading (2) In 2009-10 there are overlap profits of £12,400 in respect of the six-month period October 2008 to April 2009 © Emile Woolf Publishing Limited 175 Paper F6 (UK): Taxation FA2012   (c) (3) In 2010-11 there are overlap profits of £6,225 in respect of the three-month period July 2009 to 30 September 2009 (4) The basis period for 2011-12 is 21 months long Therefore all nine months of overlap profits are relieved so that only twelve months worth of profits are assessed in this year If Li changes her accounting date from 30 June to 31 March the application of the basis period rules will be simplified The maximum assessment in the year of cessation will be for twelve months Li’s existing overlap profits are fully utilised as a result of the change Otherwise, these overlap profits would not be relieved until the cessation of trading The disadvantage is that the interval between earning profits and paying the related tax liability will be nine months shorter with an accounting date of 31 March (a) (i) (1) The rate of corporation tax at which relief will be obtained, with preference being given to profits charged at the marginal rate and then the main rate (2) The timing of the relief obtained, with a claim against total profits under s37 CTA 2010 resulting in earlier relief than a claim under s45 CTA 2010 against future trading profits (3) The extent to which relief for the qualifying charitable donations will be lost, since these cannot be carried forward (ii) Year ended 30 June 2010 Trading profit Property business profit Total Profits Loss relief s37 (W1) Loss relief s37 (W2) Qualifying charitable donation TTP 176  Period ended 31 March 2011 Year ended 31 March 2012 Year ended 31 March 2013 £ £ £ £ 86,600 – ‒‒‒‒‒‒‒ 86,600 (21,200) – 4,500 ‒‒‒‒‒‒‒ 4,500 (4,500) 7,300 8,100 ‒‒‒‒‒‒‒ 15,400 – 5,600 ‒‒‒‒‒‒‒ 5,600 ‒‒‒‒‒‒‒ 65,400 ‒‒‒‒‒‒‒ – (15,400) ‒‒‒‒‒‒‒ – (5,600) ‒‒‒‒‒‒‒ – (1,400) ‒‒‒‒‒‒‒ 64,000 ‒‒‒‒‒‒‒ – ‒‒‒‒‒‒‒ – ‒‒‒‒‒‒‒ – ‒‒‒‒‒‒‒ – ‒‒‒‒‒‒‒ – ‒‒‒‒‒‒‒ – ‒‒‒‒‒‒‒ (1) The balance of the trading loss for the period ended 31 March 2011 (25,700 – 4,500 = £21,200) is carried back to the year ended 30 June 2010 (2) The trading loss for the year ended 31 March 2013 is set off against total profits of the same accounting period and then carried back to the year ended 31 March 2012 This leaves unrelieved losses of £57,300 (78,300 – 5,600 – 15,400) (3) The qualifying charitable donations for the period ended 31 March 2011 and the years ended 31 March 2012 and 31 March 2013 are wasted © Emile Woolf Publishing Limited Section 4: Answers to mock exam questions (iii) (1) The trading loss for the final twelve months of trading can be relieved against total profits for the previous 36 months under s39 CTA 2010 (2) Therefore the unrelieved losses of £57,300 could have been carried back and fully set off in the year ended 30 June 2010 (b) Lifetime transfer £ Value before transfer (3,000/5,000 = 60%) 3,000 x £400 1,200,000 Value after transfer (2,000/5,000 = 40%) 2,000 x £300 (600,000) ‒‒‒‒‒‒‒‒ 600,000 Nil rate band (325,000) ‒‒‒‒‒‒‒‒ 275,000 ‒‒‒‒‒‒‒‒ Chargeable IHT due £275,000 x 20/80 = £68,750 Gross chargeable transfer carried forward £668,750 (600,000 + 68,750) Additional liability on death Gross chargeable transfer Nil rate band Chargeable IHT due £343,750 x 40% Less paid during lifetime £ 668,750 (325,000) ‒‒‒‒‒‒‒‒ 343,750 ‒‒‒‒‒‒‒‒ 137,500 (68,750) ‒‒‒‒‒‒‒‒ 68,750 ‒‒‒‒‒‒‒‒ No taper relief is due as Lucy will have survived for less than three years © Emile Woolf Publishing Limited 177 Paper F6 (UK): Taxation FA2012   178  © Emile Woolf Publishing Limited 2013 ACCA F6 (UK) Taxation FA12 A well-written and focused text, which will prepare you for the examination and which does not contain unnecessary information • Comprehensive but concise coverage of the examination syllabus • • • • Simple English with clear and attractive layout A large bank of practice questions which test knowledge and application for each chapter A full index The text is written by Emile Woolf International’s Publishing division (EWIP) The only publishing company focused purely on the ACCA examinations • EWIP’s highly 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