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Taxation (United Kingdom)
Time allowed Reading and planning: Writing: 15 minutes 3 hours
ALL FIVE questions are compulsory and MUST be attempted. Rates of tax and tables are printed on pages 3 – 5. Do NOT open this paper until instructed by the supervisor. During reading and planning time only the question paper may be annotated. You must NOT write in your answer booklet until instructed by the supervisor. This question paper must not be removed from the examination
Kaplan Publishing/Kaplan Financial
Paper F6 (UK)
recording. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims. incidental. including photocopying. consequential or otherwise arising in relation to the use of such materials. No part of this examination may be reproduced or transmitted in any form or by any means. electronic or mechanical.P AP E R F 6 (U K ) : TA XA TION (FA20 11) © Kaplan Financial Limited. Please consult your appropriate professional adviser as necessary. without prior permission from Kaplan Publishing. 2012 The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. 2 K A P LA N P UB L I S H I N G . All rights reserved. indirect. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. whether direct. or by any information storage and retrieval system.
TAX RA TES AN D A LLOWAN CES TAX RATES AND ALLOWANCES SUPPLEMENTARY INSTRUCTIONS 1 2 3 Calculations and workings need only to be made to the nearest £. KAPLAN P UBLI S H I N G 3 .000 100.001 – £150.000 £ 7. A rate of 5% applies to petrol cars with CO2 emissions of 75 grams per kilometre or less.800.600. Individual Savings Accounts (ISAs) The overall investment limit is £10.000 £150. Car fuel benefit The base figure for calculating the car fuel benefit is £18.340 can be invested in a cash ISA.000 The maximum contribution that can qualify for tax relief without evidence of earnings is £3.5 Basic rate Higher rate Additional rate £1 – £35.560 of taxable income.001 and above A starting rate of 10% applies to savings income where it falls within the first £2. INCOME TAX Normal rates % 20 40 50 Dividend rates % 10 32. All apportionments should be made to the nearest month. Personal allowances Personal allowance Standard Personal allowance 65 – 74 Personal allowance 75 and over Income limit for age related allowances Income limit for standard personal allowance Car benefit percentage The base level of CO2 emissions is 125 grams per kilometre. Pension scheme limits Annual allowance £50.475 9.940 10. All workings should be shown.5 42.090 24. and a rate of 10% applies where emissions are between 76 and 120 grams per kilometre. of which £5.680.000 £35.
000 of expenditure % 20 10 45p 25p 100 20 10 100 CORPORATION TAX Financial year Small profits rate Main rate Lower limit Upper limit Standard fraction 2009 21% 28% £300.000 £71.500.0% £73.000 £1.500.000 £1.500.000 7/400 2010 21% 28% £300.000 £1.000 3/200 Marginal relief Standard fraction × (U – A) × N/A VALUE ADDED TAX Standard rate of VAT Registration limit Deregistration limit 20.000 miles Capital allowances: rates of allowance Plant and machinery Main pool Special rate pool Motor cars (purchases since 6 April 2009 (1 April 2009 for limited companies)) CO2 emissions up to 110 grams per kilometre CO2 emissions between 111 and 160 grams per kilometre CO2 emissions above 160 grams per kilometre Annual investment allowance First £100.P AP E R F 6 (U K ) : TA XA TION (FA20 11) Authorised mileage allowances: cars Up to 10.000 miles Over 10.000 4 K A P LA N P UB L I S H I N G .000 7/400 2011 20% 26% £300.
5% Nil 9.8 13.0 Nil 13.000 10% Percentage reduction % 20 40 60 80 Nil 40% 20% Class 1 Class 1A Class 2 Class 4 Employer KAPLAN P UBLI S H I N G 5 .0 18% 28% £10.000 Excess – Death rate – Lifetime rate Taper relief Years before death Over 3 but less than 4 years Over 4 but less than 5 years Over 5 but less than 6 years Over 6 but less than 7 years CAPITAL GAINS TAX Rates of tax Annual exempt amount Entrepreneurs’ relief – Lower rate – Higher rate – Lifetime limit – Rate of tax NATIONAL INSURANCE CONTRIBUTIONS (not contracted out rates) Class 1 Employee £1 – £7.000.600 £10.0% 0.073 and above per year % Nil 12.476 and above per year £1 – £7.0% 3.8 £2.0 2.475 per year £42.50 per week Small earnings exception limit £5.072 per year £7.225 per year £7.226 – £42.226 – £42.315 £1 – £7.TAX RA TES AN D A LLOWAN CES INHERITANCE TAX Tax rates £1 – £325.475 per year £42.476 and above per year RATES OF INTEREST Official rate of interest: Rate of interest on underpaid tax: Rate of interest on overpaid tax: 4.225 per year £7.0 2.
Both properties are freehold houses.P AP E R F 6 (U K ) : TA XA TION (FA20 11) ALL FIVE questions are compulsory and MUST be attempted 1 Lucinda and Max are a married couple.000 per month to cover travel expenses. and her husband Max has been a self employed professional photographer for a number of years. His tax adjusted trading profits after capital allowances were £5. A new kitchen costing £11. For the tax year 2012/13 the company has offered Lucinda the opportunity to receive a cash payment of £2. (4) Cartoon Ltd has provided Lucinda with living accommodation in a company flat since 1 May 2010. (5) Max During the tax year 2011/12 Max’s business suffered. Income tax of £43. In addition to her salary.000.000 was put into the flat during October 2010. which are let out.800 received from a UK company on 23 March 2012.200. The first bonus of £15. For the tax year 2012/13 Cartoon Ltd has offered Lucinda the choice of either continuing to have her company motor car.500 per month. (3) KAPLAN P UBLI S H I N G 6 . Lucinda became entitled to this second bonus on 25 March 2012.600 and she would have £5.450.760 was deducted from this figure under PAYE. Lucinda’s only other income received in 2011/12 was dividends of £10.200 of allowable business travel expenses to be funded out of the cash allowance. The company purchased the flat in August 2009 for £150. Lucinda received two bonus payments from Cartoons Ltd during the tax year 2011/12. Lucinda is employed by Cartoons Ltd as a graphic designer.000 a month so she can rent accommodation of her own choice rather than living in the company flat. The following information is available for the tax year 2011/12: Lucinda (1) (2) During the tax year Lucinda was paid a gross annual salary of £80. and it has an official CO2 emission rate of 222 g/km. Lucinda became entitled to this first bonus on 10 April 2011.000 by Cartoons Ltd. The monthly rent she estimates she will have to pay for accommodation of a similar standard to the company flat will be £1. Fortunately Max had other sources of income during the tax year 2011/12 as follows: (1) Max owns two properties.000 was paid on 30 April 2011 and was in respect of the year ended 31 December 2010. or receiving a cash payment of £1. and it was valued at £195. with a diesel powered engine and a list price of £23. The annual value of the flat is £10. The second bonus of £16. Lucinda estimates that her commuting expenses for a full year would be £2.000 on 1 May 2010.000. Lucinda is provided with a company motor car.000. Cartoon Ltd also provides Lucinda with fuel for private journeys.000 was paid on 31 March 2012 and was in respect of the year ended 31 December 2011. The motor car cost Cartoon Ltd £21. with the first property being let out furnished and the second property being let out unfurnished.
(9 marks) Calculate the increase or decrease in Lucinda’s income tax payable for the tax year 2012/13 assuming she decides to accept the cash allowances for both the travelling and accommodation costs instead of keeping her company car and company flat. On 30 September 2011 the tenant left owing three months’ rent which Max was unable to recover. payable in advance. These were the actual cash amounts received. and spent £600 on advertising for tenants. and was then let from 1 June 2011 to 5 April 2012 at a monthly rent of £500. On 4 December 2011 Max won £130 on the National Lottery. or taking both of the cash allowances. Max claims the wear and tear allowance. (2) (3) Max received building society interest of £1. tax paid under PAYE and dividends remain the same and the 2011/12 tax rates and allowances remain unchanged in 2012/13. The second property was purchased on 1 May 2011. payable in advance. Max insured both of his rental properties at a total cost of £300 for the year ended 30 July 2011. and £400 for the year ended 30 July 2012. During the tax year 2011/12 Max made Gift Aid donations totalling £2. The property was not re-let before 5 April 2012. Assume that in 2012/13 Lucinda’s salary. During March 2012 Max spent £200 on maintenance of the property.REVISION MOCK QUESTIONS The first property was let from 6 April 2011 to 30 September 2011 at a monthly rent of £300. (6 marks) (9 marks) (d) (e) Calculate the income tax payable by Max for the tax year 2011/12. The insurance is payable annually in advance. Required: (a) (b) Calculate the income tax and National Insurance contributions payable by Lucinda for the tax year 2011/12.000 (gross) to Oxfam. bonuses.000 and dividends of £800.000 in respect of a loan that was taken out to purchase this property. For the period 1 May 2011 to 5 April 2012 Max paid loan interest of £1. (5 marks) (c) Calculate which of the two options will be more beneficial for Lucinda based on her net disposable income (i) (ii) keeping both the company car and company flat. (1 mark) (Total: 30 marks) KAPLAN P UBLI S H I N G 7 . Explain why it would be more beneficial for the couple if the Gift Aid donation had been paid by Lucinda rather than Max. Where possible. You should assume that taking both of the cash allowances will increase Lucinda’s annual National Insurance contributions by £616.
350 2. The expenses that have been deducted in calculating this figure include: Depreciation and amortisation of lease Entertaining customers Entertaining employees Gifts to customers (pens costing £25 each displaying Posh Yachts Ltd’s name) Gifts to customers (food hampers costing £40 each) Leasehold property £ 46.500 2.000 has CO2 emissions of 140 grams per kilometre.000. is used by the factory manager and 40% of the mileage is for private journeys. The lorry sold on 15 December 2011 for £12.300 21.000 (12. The following information is relevant for the year ended 31 December 2011: Operating profit The operating profit is £450. The motor car purchased on 1 December 2011 for £21. Plant and machinery On 1 January 2011 the tax written down values of plant and machinery were as follows: £ General pool 50.000.200 10.000 8.310.000 has CO2 emissions of 170 grams per kilometre and has no private use. It has unutilised capital losses brought forward of £2.200 On 1 July 2011 Posh Yachts Ltd acquired a leasehold office building that is used for business purposes. The company paid a premium of £90. The motor car purchased on 1 September 2011 for £16.000 8.640.000 has CO2 emissions of 105 grams per kilometre and has no private use.P AP E R F 6 (U K ) : TA XA TION (FA20 11) 2 (a) Posh Yachts Ltd is a manufacturer of private yachts.800 1.000 originally cost £19.000 The following transactions took place during the year ended 31 December 2011: Cost/(Proceeds) £ 12.000) 3 January 2011 20 February 2011 4 June 2011 1 September 2011 18 November 2011 1 December 2011 15 December 2011 Purchased machinery Purchased a computer Purchased a motor car Purchased a motor car Purchased machinery Purchased a motor car Sold a lorry The motor car purchased on 4 June 2011 for £10.000 16.000 for the grant of a fifteen-year lease. Chargeable gain Posh Yachts Ltd disposed of a surplus warehouse on 14 July 2011 and realised a chargeable gain of £16.000 Expensive motor car 21. 8 K A P LA N P UB L I S H I N G .000 3.
(5 marks) Posh Yachts Ltd registered for value added tax (VAT) on 1 January 2009.REVISION MOCK QUESTIONS Other information Posh Yachts Ltd has 2 subsidiary companies. You should ignore value added tax (VAT).000 (16. giving appropriate reasons. and the company has always had an accounting date of 31 December. During February 2012 Posh Yacht Ltd discovered that a number of errors had been made when completing its VAT return for the quarter ended 31 December 2011. (7 marks) Explain how Posh Yachts Ltd can voluntarily disclose the errors relating to the VAT return for the quarter ended 31 December 2011. and should list all of the items referred to that are relevant to the adjustment of profits. The company’s VAT returns have been submitted as follows: Quarter ended 31 March 2009 30 June 2009 30 September 2009 31 December 2009 31 March 2010 30 June 2010 30 September 2010 31 December 2010 31 March 2011 30 June 2011 30 September 2011 31 December 2011 VAT paid/ (refunded) £ 15. Required: (i) Compute Posh Yachts Ltd’s tax adjusted trading profit for the year ended 31 December 2011.000.500) 45. Required: (i) State. indicating by the use of zero (0) any items that do not require adjustment.000 Submitted 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 One month late Posh Yacht Ltd always pays any VAT that is due at the same time that the related return is submitted.000 19. Your computation should commence with the operating profit of £450.000 21.000 29. (2 marks) (Total: 25 marks) (ii) KAPLAN P UBLI S H I N G 9 .000 (12. (ii) (b) (11 marks) Compute Posh Yachts Ltd’s corporation tax liability for the year ended 31 December 2011.000 31.800 60.900 18.600 22. As a result of these errors the company will have to make an additional payment of VAT to HM Revenue & Customs.900) 23. the default surcharge consequences arising from Posh Yacht Ltd’s submission of its VAT returns for the quarter ended 31 March 2009 to the quarter ended 31 December 2011 inclusive.
000.18. the market value of the goodwill was £8. Sue Ltd purchased a replacement freehold office on 1 June 2011 for £200. She also made other disposals last year which utilised her annual exempt amount. The market value of the unsold acre of land as at 16 February 2012 was £8.00. Required: (i) (ii) (iii) (b) List the qualifying assets and minimum ownership period for Entrepreneurs’ relief. (7 marks) Calculate the reduction in capital gains tax assuming Sue had not sold her retail business last year. She had originally purchased four acres of land on 17 July 2009 for £5.000. The retail price index (RPI) for July 1992 was 138.000 and it had nil cost. with recorded bargains of £9. and for May 2011 it was 234.000.000.8.22. (1 mark) Sue is also the major shareholder of Sue Ltd a small company that offers legal advice. On 16 February 2012 Sue sold three acres of land for £10. £9. The following information is available for Sue Ltd for the year ended 31 March 2012: (1) On 31 May 2011 Sue Ltd sold a freehold office for £300. The land was never used for business purposes.000.000 £1 ordinary shares in Puzzel plc to her daughter. (3 marks) Calculate the corporation tax liability that will be deferred if the maximum possible amount of rollover relief is claimed for the year ended 31 March 2012. The only chargeable asset of her business was goodwill. (2) The tax adjusted trading profits for the year ended 31 March 2012 generated by Sue Ltd were £ 180. The shareholding is less than 1% of Puzzel plc’s issued share capital. At the date of disposal.000.000 and last year Sue sold a retail business she had owned for many years and made a capital gain of £2 million. On 31 December 2011 Sue sold her consulting business for £9.000. (1 mark) (Total: 15 marks) (ii) (iii) 10 K A P LA N P UB L I S H I N G .8.000. Sue’s shareholding had been purchased on 29 April 1995 for £12. Required: (i) State the minimum amount that must be invested in replacement qualifying business assets for the company to claim the maximum amount of rollover relief. (1 mark) Calculate the chargeable gain arising from the disposal of the freehold office building. On that date the shares were quoted on the Stock Exchange at £9. (2) (3) Sue has taxable income in 2011/12 of £25. The office had been purchased on 15 July 1992 for £158.15 and £9.P AP E R F 6 (U K ) : TA XA TION (FA20 11) 3 (a) Sue disposed of the following assets during the tax year 2011/12: (1) On 15 July 2011 Sue made a gift of her entire shareholding of 12.10 – £9. (2 marks) Compute Sue’s capital gains tax liability for 2011/12. and Sue has never been employed by Puzzel plc.200.000.000.
150.REVISION MOCK QUESTIONS 4 Alison is a wealthy housewife and at the beginning of the tax year 2011/12 she decided to start her own business as a caterer for private parties. Your answer should be supported by computations (2 marks) (d) (e) State the due dates for the payment of tax assuming Alison is treated as carrying on a trade. (3 marks) State the due date for notifying HM Revenue and Customs of chargeability to tax on a new source of income. and she sold the most precious ones through an auction house. She advertised the sale of some of the paintings on the internet. Length of ownership. Required: (a) Briefly explain the meaning of each of the six ‘badges of trade’ listed in the question. Work done on the property. Motive. Alison’s only source of income or capital gains in 2011/12 is property rental income of £12.000 and two were sold through the auction house making a gross profit of £35. Your answer should be supported by computations. (b) (3 marks) Explain the tax implications. if Alison is treated as carrying on a trade in respect of the disposal of the paintings. In order to raise finance she decided to sell a few of antique paintings that she had collected over the past 20 years. Circumstances responsible for the realisation. (6 marks) (c) Explain the tax implications if Alison is not treated as carrying on a trade in respect of the disposal of the paintings. She understands that whether or not she is treated as carrying on a trade will be determined according to the six following ‘badges of trade’: (1) (2) (3) (4) (5) (6) Subject matter of the transaction. She has been told that HM Revenue and Customs could treat the profits as either trading profits or capital gains. During 2011/12 she sold ten paintings via the internet making a total profit of £60. Alison is unsure as to how the profits on her painting sales will be taxed. Frequency of similar transactions. The auction house charged 2% commission on their sales. (1 mark) (Total 15 marks) KAPLAN P UBLI S H I N G 11 .000 before deducting the auctioneer’s commission. and assuming she is not treated as carrying on a trade. You are not expected to quote from decided cases.
(4 marks) The nil rate bands for earlier years are as follows: 2002/03 2008/09 £250. Required: (a) Calculate the inheritance tax payable during Mr Wealthy’s lifetime and as a result of his death. (b) (11 marks) Explain the advantages of gifting assets to potential legatees during the donor’s lifetime rather than leaving assets to be distributed on death.000.000 Gift to nephew for £100.000 (15 marks) 12 K A P LA N P UB L I S H I N G .000.000.500. Mr Wealthy paid any IHT arising on the gift to the trust. funeral expenses of £10. since his wife can live comfortably from her own assets and investments. During his lifetime he made the following gifts: January 2003: May 2008: Gift to a trust for £350.P AP E R F 6 (U K ) : TA XA TION (FA20 11) 5 Mr Wealthy died in August 2011 leaving an estate worth £1. State the due dates of payment and who will pay the tax in each case.000 and executor’s fees of £9. At the time of his death he had an outstanding income tax liability of £50.000 £312.000. Mr Wealthy left his entire estate to his son Wealthy Junior.
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