INSTITUTE OF TECHNOLOGY CARLOW

FACULTY OF BUSINESS & HUMANITIES

DEPARTMENT OF BUSINESS

SUMMER EXAMINATIONS 2021

Course CW948 / CW908 DATE:

Code:
BBACTB / TIME:
BBOPTA_B

DURATION: 3
HOURS

Years: 2&3

Course Title: Bachelor of Arts (Hons) in Accounting

Bachelor of Business (Hons) in Accounting and
Finance

Subject: TAXATION

Examiners: Ms M Meehan
External Dr. Peter Cleary
Examiner:
INSTRUCTIONS TO CANDIDATES:

1. Write your Name, Student Number, Course Title, Subject/Module

Title and Course Year on your answer book.

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2. Section A – All questions are compulsory. The taxes examined are
Income Tax, Corporation Tax, Capital Gains Tax and VAT. There
is one question under each tax head.
3. Section B- Attempt 1 Question

2
If you have already uploaded this before the exam –
fantastic – then you can ignore this.

Faculty of Business and Humanities

Online Exam – Summer 2021

Student Name: __________________

Block letters or typed

Student Number: __________________

Programme: __________________

Lecturer Name: __________________

Module: Taxation

Year: 2&3

Date: 21st May

Duration: 3 hours to complete and an additional half

hour to upload.

Declaration
This examination will be submitted using Blackboard as the online
submission tool.
By submitting my examination to Blackboard, I am declaring that this
examination is my own work.
I understand that I may be required to orally defend any of my answers,
to the lecturer, at a given time after the examination has been completed,
as outlined in the student regulations.
Signed: (Type your name / sign here) ____________________________

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 SECTION A
All Questions are compulsory
QUESTION 1-INCOME TAX

Sadhb Clarke runs a trendy bistro. She commenced her new business on the 1 March
2020. Her profit and loss account for the year ended 28th February 2021 is as follows:

Notes € €
Turnover 2,603,134

Cost of sales 1 (1,012,910)

Gross profit 1,590,224

Administrative expenses

Advertising 5,000
Wages and salaries 2 301,538
Employer's PRSI contributions 30,393
Rent 380,000
Rates 12,823
Insurance 49,850
Light and heat 3 36,589
Repairs and maintenance 4 58,117
Cleaning 23,164
Security costs 60,269
Telephone 5 8,480
Legal and professional 6 118,000
Consultancy fees 7 8,000
Accountancy fees 8 12,600
Bank charges 11,445
Finance lease interest and charges 9 23,709
Motor Expenses 10 51,990
Music and entertainment 140,639
Sundry 11 1,888
Depreciation 78,070
(1,412,564)

Net Profit 177,660

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Notes

(1) Cost of sales

Included in cost of sales are the following:

€
Food and drink provided for staff party 600
Drink taken for a Christmas party at Sadbh’s house for friends 450

(2) Wages and salaries are made up as follows:

Note €
Sadbh’s salary a 80,000
Pension contribution for Sadbh b 14,000
Payments to Tara Clarke c 15,000
Staff wages and salaries 192,538
Total 301,538

(a) No PAYE was deducted from salary paid to Sadbh

(b) The retirement annuity of €14,000 was paid to Irish Life in October 2020.

(c) Sadbh’s daughter Tara works as a part time waitress in the bistro. Her
wages for this work amounted to €8,000 gross and PAYE was deducted
from the payments made. Tara spent the summer of 2020 travelling around
the USA. When she left for the USA her mother gave her €7,000 to cover
her expenses (included in the €15,000 set out above). This was not included
under the PAYE system as wages.

(3) Light and heat

Sadbh employs a bistro manager who lives in a flat above the bistro. All
running costs relating to the flat are paid by Sadbh and included in the profit
and loss account above. Sadbh estimates that €600 of total light and heat costs
relate to this flat.

(4) Repairs and maintenance

This is made up as follows:

Note €
New kitchen equipment a 32,000
Flood damage repairs b 12,000
Roof repairs c 1,800
General repairs 12,317
Total 58,117

(a) During 2020 the bistro commenced serving take away food at lunchtimes.
€32,000 was spent on kitchen equipment for this purpose in January 2021.

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 (b) A river behind the bistro burst its banks in November 2020 flooding part of
the premises. As this had happened in previous years the cost of hiring
specialists to dry out the premises was not covered by insurance.
(c) This represents the cost of retiling part of the roof of the bistro during the
year.

(5) Telephone includes €800 in respect of the bistro manager’s phone in the flat.

(6) Legal and professional fees

These are made up as follows:

New bistro acquisition
Renewal of wine licence
Claims by customers
Total
Note €
a 68,000
b 15,000
c 35,000
118,000

(a) During 2020 Sadbh entered into negotiations for the purchase of a second
bistro. Negotiations for the purchase broke down and the purchase did not
go ahead.
(b) €15,000 represents solicitors and accountants fees incurred in making the
annual application for Sadbh’s wine licence renewal.
(c) Due to the nature of the business carried out, a number of claims by
customers for damages in respect of accidents on the premises are made
each year. €35,000 represents solicitors fees incurred during 2020 in respect
of such claims.

(7) Consultancy fees

In December 2020 Sadbh engaged an interior decorator to advise on the
refurbishment of her home and also on the refurbishment of the wine bar.
Refurbishment of Sadbh’s home has been completed and a payment of €8,000
was made for this work in December 2020.

(8) Accountancy fees

This is made up as follows:
€
Preparation of accounts 6,300
Preparation of PAYE and VAT returns 5,300
Preparation of Sadbh’s personal income tax return 1,000
12,600

(9) Finance lease interest and charges

Some of the equipment used in the bistro was acquired on finance leases. The
gross finance lease payments made during the year, i.e. interest plus capital,
amounted to €85,000.

(10) Motor Expenses include the following –

Lease payments for staff cars-
Lease payment €6,788 – Category D car Cost €32,000 Personal use 20%

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 Lease payment €3,412- Category G car Cost €25,000 Personal Use 25%
Lease payment €5,510 –Category B car Cost €21,000 Personal use 20%
Motor running expenses – Sadbh -€5,444-Personal Use 35%

(11) Sundry costs do not include any disallowable items

(12) Sadbh purchased the following assets -

February 2020 Car for Sadbh -€28,000 Golf Category C

March 2020 Kitchen Equipment €120,000
April 2020 Fixtures and Fittings €96,000
May 2020 Computer System €16,000
July 2020 Photocopier €2,300
August 2020 Ornamental Furnishings for Lobby area €12,000
January 2021 Pizza Oven €6,000

Sadbh uses her car 65% of the time for personal purposes.
All of the assets were put into use immediately except for the photocopier which was
put into use February 2021.

Other information
Sadbh has three children aged 12, 14 and 19. She has been widowed for the past few
years. Her husband Jack died in September 2016. Sadbh is 51 years of age.

Sadbh made the following payments –

 €21,000 to a carer to have her mother looked after. The total cost was €84,000
and her siblings paid the balance. The Mam has had the carer for the last 2
years.

 VHI Premiums - €1,200 net for Sadbh’s , and €600 net for each of her 3
children.

 Medical expenses –
Sight test €80
GP fees €900
Prescription medication €230

VHI refunded €600

 Preliminary tax €150,000

Sadbh’s only other income during 2020 was rental income of €14,400, after deducting
allowable expenses, from a residential property, €13,400 net deposit interest from
AIB and €1,500 net dividend income from an Irish resident company CRH.

REQUIRED
Calculate the income tax payable/refundable (including PRSI and USC) for Sadbh for
2020.

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 Total (40 Marks)

QUESTION 2 –
Corporation Tax

MB Ltd are in their eight year of trading.

MB Limited
Income Statement for the year ended 31 December 2020

Note € €
Turnover 15,303,000
Cost of sales (9,613,200)
Gross profit 5,689,800

Administration expenses
Wages and salaries (3,475,625)
Depreciation (176,320)
Royalties payable 1 (765,000)
Discount allowed (76,500)
Rent and rates 2 (313,500)
Motor lease expenses 3 (20,500)
Bank charges (7,650)
Insurance 4 (25,000)
Client entertainment 5 (7,600)
Telephone (5,430)
Legal fees 6 (47,925)
Audit and accountancy fees (21,570)
Repairs and maintenance 7 (15,700)
Miscellaneous expenses 8 (10,080)
Profit on disposal of fixed assets 9 190,000
(4,778,400)
Other income
Bank of Ireland –Interest-Gross 14 20,000
Rental income 9 40,000
Enterprise Ireland grant 10 30,000
90,000
Net interest payable and similar
expenses
Leasing cost 11 (6,250)
Loan interest payable 12 (233,675) (239,925)
Profit before tax 761,475

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 NOTES TO THE INCOME STATEMENT OF MB FOR THE YEAR ENDED
31 DECEMBER 2020

1. The Patent royalties of €765,000 consists of €700,000 paid and €65,000 accrued
as at 31 December 2020.

2. Rent and rates includes rent of €7,000 paid for accommodation for one of the
Sales directors.
3. Motor lease expenses:
The motor lease expenses are in respect of two BMW cars for the two directors,
Micheal and Aine. Each car had a retail price of € 49,250 when first registered and
each car is a CO2 emissions category C motor vehicle. The motor lease expenses
are split equally between the two BMW’s. The lease agreement for each car is
dated 7 January 2018.

4. Insurance includes the following:

€
Insurance for directors’ motor vehicles ............................
……................................... 1,800
Buildings insurance for office space .rented out to
Tenants.......................................................….. 1,780
Public liability insurance .....................................7,750

5. MB was involved in negotiating a number of new contracts during 2020. As part

of the negotiation process, the directors and shareholders had a number of
meetings with clients. The client entertainment costs were incurred in connection
with the entertainment of clients and included costs for accommodation, food and
drink.

6. Legal fees are made up of the following fees:

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 €
Legal fees re customer contracts and trade
agreements…………................................. €39,000
Legal fees in connection with employment
contracts.................................................... €5,725
Legal fees for re-negotiating of tenancy agreement for a rented office space -1,500
Legal fees re sale of property as per Note 9 €1,700

7. Repairs and maintenance costs relate mainly to repairing equipment and

maintaining the production facility. However, the cost also includes €300 in
respect of repairs carried out on the office space that they have rented out.

8. Miscellaneous expenses include: €

Penalties and interest on late payment of VAT …… 3,500

Donations to charities………………………………... 500

MB’s bookkeeper was unexpectedly on sick leave for six months during
2019/2020. It took a couple of months to find a replacement to deal with VAT
compliance. As a result, MB missed two filing dates for its VAT returns. MB had
previously been careless in filing returns. The Revenue Commissioners imposed
penalties (€3,000) and interest (€500) in respect of the late submission of the two
VAT returns.

The donations to charities relate to five contributions of €100 each made by MB to

one local charity during the year ended 31 December 2020. The charity is
registered as an eligible charity with the Revenue Commissioners.

9. During the year ended 31 December 2019, MB “consolidated” its office staff and
moved all staff into a space within the production facility. MB then rented out the
surplus space in the office building where the office staff had been previously
located. The tenants found the space very suitable for their purposes and made an
offer to buy the office building on 30 September 2020. The offer was accepted on
15 October 2020 for € 600,000. MB originally purchased the office building in

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 August 2000 for € 400,000 and incurred solicitor’s fees of €2,500 on acquiring the
office building and stamp duty of € 30,000. Solicitor’s fees paid on the disposal of
the office building were € 1,700.

10. Enterprise Ireland grant was an employment grant received from the State body
during the year ended 31 December 2020.

11. Leasing costs include the following:

Finance lease interest .................€6,250

The finance lease interest was paid to BOF Finance Leasing Company in respect
of the lease of computer equipment. The total repayments (capital + interest) on
the finance lease for the year ended 31 December 2020 amounted to € 20,000.

12. Loan interest payable includes bank overdraft interest of €33,675 paid during the
year ended 31 December 2020 and interest paid on a bank loan of €200,000 used
for trade purposes.

13. Capital allowances on trade related assets for the year ended 31 December 2020
are €81,250, including any balancing allowances and / or balancing charges
arising on fixed assets disposed.

14. DIRT was deducted at source, but €20,000 is the Gross figure.

REQUIRED
Calculate the corporation tax liability and any Income Tax Liability of MB Ltd for the
year ended 31 December 2020. (18 marks)
Will MB Ltd be entitled to CT exemption relief, and state the reason(s) for your
answer.
(2 marks)
Total (20 marks)

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12
QUESTION 3

QUESTION 3(a) Capital Gains Tax PPR

Rita Devlin inherited a bungalow from her Uncle Fred Byrne. Fred had purchased the
bungalow in 1970 for €17,000. He had extended it in 1972 and spent €4,900 on the
extension. It was valued at €34,000 on the 5th April 1974. Fred died on 1st October
1999 and left it to Rita, on that date it was valued at €239,000. Rita moved into the
bungalow immediately in October 1999. Rita used 20% of the property for her
Consultancy practise and she lived in the property until 1st October 2009. Her
employer transferred her to Donegal on the 1st October 2009 until the 1st October 2015
when she returned back to her house. Again she used 20% of the property for her own
business. On 1st October 2018 she went travelling around Europe and she has not
returned. She put the house up for sale on the 1st July 2020 and it sold on the 1st
October 2020 for €540,000. The legal costs of sale were €5,600.
REQUIRED
Calculate the CGT payable by Rita on the sale of the property and claim any relevant
relief for her. (12 marks)

QUESTION 3(B) Various Transactions

In January 2020 Peter sold an apartment, which he owned, to his daughter Cassie for
€16,000. The market value of the apartment in January 2020 was €350,000. Peter had
inherited the apartment from his father Jack in November 2002, at which time the
apartment had a market value of €210,000. Jack (Peter’s father) purchased it in June
1990 for €190,000.

Peter sold an antique brooch for €2,700 in September 2020. His wife had gifted it to
him on the 1st December 2005, she had purchased it in October 1998 for €1,300.

Peter had a loss forward from his sister of €5,000, and €12,000 other losses.
REQUIRED
Calculate his CGT liability for 2020. (8 marks)

Total marks (20 marks)

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QUESTION 4-

VAT
Gamble Ltd, a VAT registered business, has the following transactions for the VAT
period March/April 2020:

Sales (exclusive of VAT) (note 1) €

Goods supplied to Irish customers 50,000

Goods supplied to business customers in China 20,000
Goods supplied to business customers in Spain 30,000
Goods supplied to private customers in France (note 2) 4,000
Services provided to Irish business customers 35,000
Services provided to German business customer 18,000
Contract for goods and services supplied to Irish customer (note 3) 22,000

Purchases (inclusive of VAT where applicable) (note 4)

Purchases of goods for resale 93,800

Computer equipment 8,100
Office supplies 3,800
Entertaining 2,000
Petrol for car 3,640
Diesel for van 5,460
Van repairs (13.5%) 900

Notes:
1. The VAT rate applicable to the goods supplied by Bramble Ltd is 23%. The
VAT rate applicable to services provided by Bramble Ltd is 13.5%.

2. The total amount of sales revenue from goods supplied to private customers in
France is expected to be €22,000 for 2020. This is consistent with sales
revenue to French private customers in previous years.

3. Bramble Ltd invoiced an Irish customer €22,000 in relation to a contract for

the provision of goods and services. The cost of the goods forming part of the
contract was €19,000.
4. Other purchases’ include VAT at the standard rate of 23% unless otherwise
indicated.
5. In addition to the above purchases, the company purchased equipment from
Spain in April 2020 at a cost of €70,000.

REQUIRED
Calculate the VAT payable/repayable for the period March/April 2020.
Total (10 Marks)

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 SECTION B
Attempt ONE Question
QUESTION 5 –

Administration

Jack Ryan is a self –employed carpenter. He has a few general queries that he needs
you to address. Write a report to Jack to answer his questions.

(1)
His Case 1 profits for 2019 is €112,800
His Case 1 profits for 2020 is €138,000

How much preliminary tax does he have to pay and by what date. (3 marks)

(2)
A staff member wants a company car. Jack wants to know how the staff member
would be taxed on the car. Write a memo to him explaining the normal calculations.
City driver relief can be ignored.
(3 marks)

(3)
Jack s wife has decided to stay at home to mind the children. She will have €3,000
dividend income and €2,000 Gross Bank of Ireland interest. How will it affect their
tax credits and bands as a married couple. They are jointly assessed.
(4 marks)

REQUIRED
Write a brief report to address his questions. Note brief explanations and details
required. Points allocated for tax knowledge. Essay style not required.

Total (10 marks)

Last Question – Next Page

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QUESTION 6 –Schedule E Termination Payments

Sarah was employed as a strategy expert with Training Specialists Ltd for 24 years
and nine months. On 30th September 2020, Sarah accepted a redundancy payment
from her employer. The payment was comprised of a statutory redundancy payment
of €33,000 and an ex-gratia payment of €98,000. The present value of Sarah’s tax-
free pension lump sum was €29,000 on 30th September 2020. She was also allowed
keep her company car which had a market value of €17,800 and they paid for a
training course for her to the value of €3,980.
Her Salary earned for the last 3 years –

Date Wages BIK Pension Deductions

30/09/2020 €48,900 €11,450 €22,800
2019 €54,200 €8,990 €23,600
2018 €47,888 €12,345 €22,700
2017 €48,000 €12,000 €23,900

REQUIRED
Calculate the taxable portion of her termination payment.
Total Marks (10 marks)

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List OF Information for tax exams.
EIIS - EIIS - €250,000 maximum, (if invested for 4 years, €500,000 if invested for 7
years)
€250 minimum

PHI – Maximum 10% of total income

Carers Allowance - €75,000 maximum

Medical expenses –
Eligible expenses include –
 Services of a practitioner,
 diagnostic procedures,
 maintenance or treatment in a hospital or nursing home,
 drugs or medicine supplied on prescription
 physiotherapy,
 orthopaedic treatment,
 transport by ambulance,
 supply or repair of medical, surgical or dental appliances used on the advice of
a practitioner
 maternity care
 educational psychological assessments and speech and language therapy
services for children

It excludes the following expenses-

 Routine ophthalmic treatment – sight testing, advice on spectacles, contact
lenses, and the provision, and repairing of spectacles, or contact lenses.
 Routine dental treatment, extraction, scaling and filling of teeth, and provision
and repairing of artificial teeth, dentures

Home Carers Credit-

Amount €1,600
Earnings ceiling - €7,200

Employee Tax Credit

€1,650,

Earned Tax Credit

€1,500

College Fees – Maximum tuition fees €7,000

Disallow the first –
€1,500 – part –time course
€3,000 – full-time course

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Single Tax Credit 1,650
Married Tax Credit 3,300
Widowed Tax Credit, (No Children) 2,190
Widowed Person – Children 3,300
Lone Parent (1,650+1650) 3,300
Widowed Parent
First Year after bereavement 3,600
Second Year after bereavement 3,150
Third Year after Bereavement 2,700
Fourth Year after bereavement 2,250
Fifth year after bereavement 1,800
Incapacitated Child (per child) 3,300
Blind Person 1,650
Age Credit Single, Widowed 245
Age Credit Married 490
Employee Tax Credit (Maximum) 1,650
Earned Income Credit 1,350
Home Carer (Maximum) 1,500

Tax Bands
Single - €35,300
Lone Parent €39,300
Married – one income €44,300
Married – Two incomes €44,300 - €70,600

DIRT Rate -33%

DWT Rate -25%

PRSI
4% -
Section 381 losses are allowed
Section 382 losses are not allowed

USC USC TAX Cumulative CUMULATIVE INCOME

€12,012 * .5% = 60.06 60.06 12,012
€8,472 * 2% = 169.44 229.50 20,484
€49,560 * 4.5% = 2,230.20 2,459.70 70,044
€29,956 * 8% =

11% for self- employed > €100,000

Top rate 8% for employees

Section 382 is allowed.

Section 381 is not allowed

High Earners Restriction

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Income Ceiling €125,000
Specified Relief Ceiling €80,000
Allowed the greater of (1)20% of adjusted income, and (2) €80,000

Adjusted income = Total income, ignoring DIRT, allowing reliefs other than specified
reliefs

Low Income Exemption & Marginal Relief

 65 years of age, Single < €18,000
 65 years of age, Married or CP €36,000
 Per child for first 2 kids -€575
 3rd child onwards -€830 per child

Rent a Room Relief

€14,000 not taxable

Termination Payments
(1) €10,160 + €765 * no of years = basic exemption

(2) increased exemption = (1) plus a possible additional €10,000

(3)
SCSB –
Average salary for the last 3 years * no of years of service – tax free lump sum
15 from
superannuation scheme
Retirement Relief
Age % of Earnings
- 29 15%
30.39 20%
40.49 25%
50.54 30%
55.60 35%
>60 40%
Ceiling €115,000

Medium Term Account – up to €480 tax free

Long Term Account – up to €635 tax free
These accounts must have been opened before 2014

BIK
Car
Business KM Taxable – of OMV
<24,000 30%
24,001-32,000 24%
32,001-40,000 18%
40,001-48,000 12%
>48,000 6%

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Preferential Rates
Mortgage 4%
Other Loans 13.5%

Formula Re Short Term Lease

Premium * 51-N
50 N= Number of years in the lease.

Capital Allowances Rates

4TH December 2002 – 12.5% S/L
Industrial Buildings 4% S/L

Capital Allowances Cars

Vehicle Category Co2Emissions (g/km)
A 0-120
B >120-140
C >140-155
D >155-170
E >170-190
F >190-225
G >225
Carbon emissions - < 155g/km –Categories A,B,C,
Amount allowed = €24,000
Carbon emissions – between 156g/km -190g/km – Categories D & E
The cost allowed to claim capital allowances on will be 50% of (the lower of €24,000
or the cost of the car).

Carbon emissions > 190g/km, Category F,G – no capital allowances

Ceiling for Motor Cars – Lease payments

As per capital allowances above.

Lease payment * Cost –ceiling

Cost

CT Exemption Marginal Relief Formula

3*(T-M)*(A+B)
T

T= Total Tax
M=€40,000
A= Tax on qualifying activities
B= Tax on gains from the sale of assets used in the qualifying trade

VAT –EU Thresholds-Distance Selling

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Luxembourg, Austria, Germany, France, Netherlands, -€100,000 per year
Ireland, Spain, Belgium, Finland, Greece, Portugal - €35,000
Italy -€27,889
Sweden –SEK320,000
Denmark-DKK280,000

CAT Thresholds
Group 1 - €335,000
Group 2 - €32,500
Group 3 - €16,250

Gift Exemption – €3,000

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