VIETSOURCING TRAINING CENTRE

Progress Test 1
Principle of Taxation

Time allowed: 30 minutes

Date: ..............................................................................................
Class: …………………………………………………………………….
Student’s name: ..............................................................................
Email: ............................................................................................
Tel No: ...........................................................................................

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Total marks:

Good luck to you./.

 ICAEW – Principle of taxation
Progress Test 1

SECTION A
1. Ruaraidh is a Chartered Accountant with significant gambling debts who is being
threatened by his creditors. He is aware that some of his clients trust him completely
and would probably not realise if he took money from their accounts for his own use.
Which two of the following options correctly identify the type of threats Ruaraidh
is experiencing according to the IESBA Code of Ethics?
A. Self-interest threat
B. Self-review threat
C. Advocacy threat
D. Familiarity threat
E. Intimidation threat

2. John has been a client of your firm for many years. Whilst preparing his accounts
recently you became concerned about the source of some of the receipts coming into
his business bank account. The explanations that he provided were not satisfactory.
Select whether the following courses of action are correct in accordance with the
anti-money laundering guidance for accountants issued by ICAEW.
You contact the firm's Money Laundering Reporting Officer (MLRO) regarding your
suspicions.
A. Correct
B. Not correct
You inform John that you have contacted the MLRO.
C. Correct
D. Not correct
3. Which of the following options is not a source of tax law?
A. Finance Act
B. Statutory instruments
C. HMRC extra-statutory concessions

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Progress Test 1

D. Case law

4. Select whether each of the following statements is true or false.

Legislation passed by the European Union has historically had no impact on the UK
taxation system.
A. True
B. False
HMRC has many responsibilities including administering Child Benefit.
C. True
D. False

5. Maria-Vittoria has net income for 2020/21 of £105,000.

What is Maria-Vittoria's personal allowance for 2020/21?
A. £12,500
B. £2,500
C. £10,000
D. £7,500

6. During 2020/21 Gordon has taxable income (after deduction of the personal
allowance) of £42,900, consisting entirely of dividend income.
What is Gordon's total income tax liability for 2020/21?
A. £4,418
B. £4,568
C. £3,068
D. £3,218

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 ICAEW – Principle of taxation
Progress Test 1

7. Florence is an employee of Twins Ltd with a gross annual salary of £18,000. In

addition, Florence has taxable benefits worth £3,917. Twins Ltd does not use
voluntary payrolling for benefits. Florence underpaid her tax for 2018/19 by £420.
Florence has agreed with HMRC that this underpayment will be collected via her
PAYE code for 2020/21.
What is Florence's PAYE code for 2020/21?
A. K749
B. 1068L
C. 648L
D. 816L

8. David earns £70,000 a year. His employer provides him with taxable benefits of
£16,450 relating to living accommodation.
What is David's PAYE code for 2020/21?
K___________

9. Which two of the following statements indicate that a trade is being carried on?

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 ICAEW – Principle of taxation
Progress Test 1

A. Henry has just sold a house that he bought three months ago. He spent £78,000
purely to make the property more attractive to potential purchasers.
B. Omar sold a third batch of shares in a single week, making a substantial profit.
C. Tariq is experiencing cash flow problems and has had to sell a car that he bought
three months ago to replace his old car. This is Tariq's fourth car in the past year.
D. William restores and resells antique chandeliers for a profit in his spare time. He
has just sold a chandelier that he has been renovating for the last six months.
This is the third renovated chandelier that he has sold in the last two years.
10. The badges of trade are used for which of the following purposes?
A. To determine whether an individual is trading in their own right or is an employee
B. To determine whether a trading transaction is being carried out rather than a
capital transaction
C. To determine whether a trading receipt is taxable or exempt
D. To determine whether a trading expense is allowable or disallowable

11. Paul has been trading for many years making up accounts to 31 December each
year. At 1 January 2021, the tax written down value of his main pool was £9,000.
On 1 May 2021, Paul bought a machine for use in the business costing £40,000.
What are the maximum capital allowances that Paul can claim for the year to 31
December 2021?
A. £8,820
B. £41,620
C. £49,000
D. £40,000

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 ICAEW – Principle of taxation
Progress Test 1

12. Martin purchased a van for £12,000 during his six-month period of account to 31
July 2021.
What is the maximum amount of capital allowances available for the van for the
six months ended 31 July 2021?
A. £1,080
B. £2,160
C. £6,000
D. £12,000

13. Liam ceased trading on 31 January 2021. The recent tax-adjusted trading profits of
his business are as follows.
£
Year ended 30 June 2019 62,000
Year ended 30 June 2020 19,000
Period ended 31 January 2021 8,000
Liam has overlap profits from commencement of £6,400.
What is Liam's trading profit assessment for 2020/21?
A. £1,600
B. £12,600
C. £20,600
D. £82,600

14. Jonah commenced trading on 1 October 2020, preparing his first accounts to 30 June
2021. The tax-adjusted trading profits for the period ended 30 June 2021 were £43,785.
What is Jonah's assessable trading profit for 2020/21?
Trading profit for 2020/21: £_____________

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31 December 2021. The
ICAEW – Principle of taxation for
Progress Test 1 tax-adjusted trading profits 2020/21?
for the year ended 31
Trading
December 2021 are
15. Connor commenced trading on 1 profit for
expected to be £42,860.
January 2021, preparing his first 2020/21:
accounts to What is Connor's £______
assessable trading profit ____

16. Sam has her own business and has tax-adjusted trading profits for the year ended 31
March 2021 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 2020/21?
A. Class 1 primary
B. Class 1 secondary
 C. Class 2
D. Class 4

17. Disc Ltd made a trading profit of £31,500 in its year ended 31 March 2021. 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 2020/21?
Total national insurance liability: £____________

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 ICAEW – Principle of taxation
Progress Test 1

18. During 2020/21 Space Ltd pays Laura, aged 18, a salary of £30,000 pa.
What are the Class 1 secondary contributions payable by Space Ltd in 2020/21 in
respect of Laura? Ignore the employment allowance.
£_____________

19. Which two of the following items are exempt assets for capital gains tax
purposes?
A. A £5 commemorative UK coin produced in 2012
B. A painting worth £15,000 which was inherited rather than purchased
C. £25,000 of shares in an unquoted trading company
D. £10,000 of National Savings Certificates
20. Lothar purchased a holiday home in June 2004. The holiday home cost £95,000
and he paid stamp duty land tax and solicitors' fees of £1,800 relating to the purchase.
In August 2020 he spent £3,400 building a conservatory onto the holiday home and
£600 on redecorating the property prior to selling it, which he expects to do within the
next few months.
The total allowable expenditure on disposal of the holiday home is:
A. £96,800
B. £98,400
C. £100,200
D. £100,800

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 ICAEW – Principle of taxation
Progress Test 1

SECTION B
Stuart received £250 of interest income on gilts during 2020/21.
Stuart has been employed part-time by DEF Ltd for three years. He received the
following remuneration package in 2020/21.
• Salary £10,000 per year;
• Bonus of £1,000, the first Stuart had ever received, in relation to the year ended
31 March 2021, paid on 5 May 2021;
• Living accommodation in the form of a flat which cost the company £227,800
when first provided to Stuart in 2018. The annual value of the flat is £6,000. The
official rate of interest at 6 April 2020 is 2.25%.
• Heating and lighting for the flat, totalling £600.
Stuart received £2,000 of dividends in March 2021 from a UK company.
Stuart has also run his own business as a sole trader for many years. Stuart has
calculated his draft taxable trading profits for 2020/21 to be £28,100. In arriving at his
draft taxable trading profits, no account has been taken of the following amounts as
Stuart was unsure of the correct treatment.
• £150 subscription to a trade organisation relating to the business;
• £1,100 cost of stock donated to a local school;
• Stuart's own salary of £12,000; and
• £30 on a gift of a bottle of wine to Stuart's employee.
Requirement
Using the standard format below, compute Stuart's taxable income for 2020/21. You
should enter a number in each relevant box. If an amount is not taxable enter a zero or
a dash into the relevant box.
Non- Savings Dividend
savings
income income income
£ £ £
Trading Income (W1)
Employment income (W2)
Gilt interest
Dividends
Net income
Personal allowance
Taxable income

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 ICAEW – Principle of taxation
Progress Test 1

W1 – Trading income

Trading profits
Subscription
Stock donation
Salary
Gift
Tax adjusted trading profits
W2 – Employment income

Salary
Bonus
Heating and lighting
Accommodation
Total employment income
£

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ICAEW – Principle of taxation
Progress Test 1

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