ACCA

Tuition (Course) Examination

June 2021 – March 2022 Exams

Taxation (TX)

Answers

We are grateful to the Association of Chartered Certified Accountants for

permission to reproduce past examination questions and model answers.
© First Intuition, 2021
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Section A

1 £ 6,682

Residential
Property Other gains Total
Taxable gains £10,000 £30,000 £40,000
Remaining basic rate band £21,180 (£37,500 – £16,320)

£ £ £
£10,000 × 18% 1,800 1,800
£11,180 (£21,180 – £10,000) × 10% 1,118 1,118
£18,820 (£30,000 – £11,180) × 20% 3,764 3,764
CGT liability 1,800 4,882 6,682

2  Tax avoidance is legal

Tax avoidance is the legal arranging of affairs in such a way that a person’s tax liability is
reduced.
Tax evasion is illegal.

3  £750
9
Interest accrued during the period 1 July 2020 to 31 March 2021 is £100,000 × 12 = £750.

4  £29,000
The taxable amount is the amount actually received in 2020/21. That is the salary of £25,000
plus the £4,000 bonus received on 30 April 2020.

5  £27,649
Employer Class 1 NIC for each employee (£56,212 (£65,000 - £8,788) × 13.8%) £7,757
£
Total employer NIC for four employees (£7,757× 4) 31,028
Less; Employment allowance (4,000)
27,028
Employer’s Class 1 A NIC (£4,500 × 13.8%) 621
27,649
ACCA TX Co u rs e e xa mi n a t i o n a ns w e rs 3

6 £ 4,380

The effect of the election is that the transferring spouse’s PA is reduced by the fixed amount of
£1,250. It is reduced by the full amount even in the year of marriage.

Rich’s taxable income is £35,650 – £12,500 = £23,150. This is not effected by the transfer of the
allowance. However, the allowance reduces Rich’s tax liability by £250 (£1,250 ×20%) and his
tax liability is £4,380 (£4,630 – £250).

7 £ 38,900
£
Trading profit 139,000
Less: Personal allowance (£12,500 - £4,500). (8,000)
Taxable income 131,000
Income tax: £
£67,500 @ 20% 13,500
£63,500 @ 40%. 25,400
Tax liability 38,900

The gross personal pension contributions are £30,000 (£24,000 × 100/80).

Daisy’s adjusted net income is therefore £109,000 ( £139,000 - £30,000). As adjusted net
income exceeds £100,000 by £9,000, the PA is reduced by £4,500.
The basic rate band is extended by the gross amount of the pension contribution, £30,000. (.
This means that the basic rate band is £67,500

8 Corporation tax payable in respect of the year is £  266,000 and the due date of

payment is  payable in instalments commencing 14 December 2020

£
Taxable trading profits 1,400,000
Dividends received 10,000
Augmented profits 1,410,000
10
£1,410,000 is above the upper limit of £1,500,000 × 12 = £1,250,000 which applies to this ten-
month period, so corporation tax is payable in instalments, starting in the seventh month of the
accounting period. Corporation tax is payable at 19% on the taxable trading profits.
Dividends are not included in taxable profits for corporation tax purposes.

9  3
Including Ace plc there are three related companies, Ace Ltd, Great Ltd and Super Ltd.
4 T u i t i on ( Co u rse ) e xa mi n at i o n an s we rs ACCA TX

10  £150,000
Losses can only be set against profits of the corresponding period.
The corresponding period here is 1 October 2020 to 31 March 2021, so six months’ worth of the
loss of £150,000 can be set against six months’ worth of the profits (£200,000).

11  25 September 2020
Notification must be made within 30 days of the date on which it is believed that the
registration threshold will be exceeded.

12
TRUE FALSE
If the error is less than the higher of £10,000 or 1% of turnover for  
the quarter ended 31 March 2021, then the error can be
voluntarily disclosed by entering it on the VAT return for the
quarter ended 31 March 2021
Both penalty interest and a penalty for an incorrect return could be  
imposed.
Penalty interest is charged only if the error exceeds the limit, such that separate disclosure to
HMRC is required.

13 £ 21,636

50% of the income tax and the Class 4 NIC.

Payments on account are not due in respect of Class 2 NIC and capital gains tax.

14  5 October 2021
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 Mustafa
commenced to trade in 2020/21 he is required to notify by 5 October 2021.

15  £20,000
£
Lifetime gift 831,000
Less: annual exemptions (c/y and b/f) (6,000)
825,000

Tax due on death:

£
£325,000 × 0% Nil
£500,000 × 40% 200,000
200,000
Less: Taper relief (gift over 4 but less than 5 years before death) (80,000)
120,000
Less: Lifetime tax paid (100,000)
20,000
ACCA TX Co u rs e e xa mi n a t i o n a ns w e rs 5

Section B

KENDRA
16 £ 23,000

£
Value transferred 446,000
Annual exemption current (3,000)
Annual exemption b/f (3,000)
440,000

Lifetime tax paid £

£325,000 @ 0% Nil
£115,000 @ 20% 23,000
23,000

17 £ 140,000

£
Value transferred 353,000
Annual exemption current (3,000)
350,000

Inheritance tax liability:

£350,000 (See exam smart) @ 40% £140,000

EXAM SMART
The full Nil rate band was used on the gift to the trust so there is none remaining to use
here. The prior year annual exemption was used on the transfer to the discretionary trust so
is not available to bring forward.

18  £1,213,000
Death Estate £
Property 970,000
Individual savings accounts 56,000
Proceeds of life assurance policy 225,000
1,251,000
Funeral expenses (14,000)
Income tax (24,000)
Chargeable estate 1,213,000
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19  £45,612
£
Chargeable gain 175,200
Annual exempt amount (12,300)
Taxable gain 162,900
Capital gains tax @ 28% £45,612

This is a residential property, so capital gains tax is charged at the rate of 28% for a higher rate
taxpayer.

20 £ 727,800

Death Estate £
Property 970,000
Individual savings accounts 56,000
Proceeds of life assurance policy 225,000
1,251,000
Funeral expenses (14,000)
Income tax (24,000)
Chargeable estate 1,213,000
Less:
Tax at 40% (£1,213,000 × 40%) (485,200)
Net Estate inherited 727,800

The NIL band had been fully utilised by the lifetime gifts and there is no RNB as the
property is not the ‘home’

MICK STONE
21  £165,000
Freehold warehouse £ £
Disposal proceeds 522,000
Cost 258,000
Extension 99,000
Floor 0
(357,000)
Chargeable gain 165,000

There is no rollover relief as the proceeds not reinvested (£202,000) exceed the chargeable
gain.

EXAM SMART
The cost of replacing the warehouse’s floor is revenue expenditure as the floor is a
subsidiary part of the property.
ACCA TX Co u rs e e xa mi n a t i o n a ns w e rs 7

22  £42,591
Land £
Disposal proceeds 81,700
Cost (See note) (39,109)
Chargeable gain 42,591
81,700
Note: The cost relating to the hectare of land sold is £39,109 (£167,400 × 81,700 + 268,000
)

23  £3,137,400
Rolling Ltd £
Disposal proceeds 3,675,000
Cost (537,600)
Chargeable gain 3,137,400

Working – Share pool

Number Cost
£ £
Purchase 750,000 960,000
Bonus issue (£750,000 × 2/3) 500,000 0
1,250,000 960,000
700,000
Disposal (£960,000 x 1,250,000 ) (700,000) (537,600)
Balance carried forward 550,000 422,400

24  £92,160
Sugar plc £
Deemed proceeds (24,000 × £7.04) 168,960
Cost (76,800)
Chargeable gain 92,160

Working – Cost
For capital gains purposes, the shares are valued at the midpoint of the quoted values:
£7.10 − £6.98
£6.98 + 2
= £7.04

25  Neither disposal
To qualify for business assets disposal relief, the shares must be in a trading company where the
employee shareholder owned ≥ 5% of the shares before disposal.
The disposal of Rolling Ltd shares does not qualify for business assets disposal relief as Mick is
not an employee of Rolling Ltd.
The disposal of the ordinary shares in Sugar plc does not qualify for business assets disposal
relief (less than the minimum required holding of 5% and Mick is not an officer or an employee
of the company). In any event, the shares would not qualify for business assets disposal relief as
Sugar plc is not a trading company or a member of a trading group.
 8 T u i t i on ( Co u rse ) e xa mi n at i o n an s we rs ACCA TX

EXAM SMART
The disposal of the ordinary shares in Sugar plc does not qualify for gift relief (as it is a listed
company it needs to be both a trading company and be a minimum 5% holding).

LONG LTD, WIND LTD AND ROAD LTD

26  £53,780
Long Ltd: Output VAT £
Sales (£52,640 – £1,760) 50,880
Group sales (£1,940 + £960) 2,900
53,780

EXAM SMART
 The tax point for the deposit is the date of payment, so this will have been included in
output VAT for the quarter ended 31 December 2020.

27  £56
Charge to director (£140 × 40%)

28  £15,778
Input VAT
Expenses 14,720
Fuel 140
Stationery (£18 × 51) 918
15,778

EXAM SMART
 No adjustment is required in respect of the repairs to the car as such input VAT can be
reclaimed, provided there is some business use.
 Refunds of VAT are subject to a four-year time limit, so in addition to the input VAT for the
stationery bought during the quarter to 31 March 2021, Long Ltd can also claim for the
input VAT incurred during the period 1 January 2017 to 31 December 2020.
ACCA TX Co u rs e e xa mi n a t i o n a ns w e rs 9

29  £Nil
Wind Ltd £
Output VAT 0
Input VAT 0
VAT payable/recoverable 0

EXAM SMART
Wind Ltd’s sales are exempt from VAT, so the company cannot be registered for VAT.

30  £3,500
Road Ltd £
Expenses 3,120
Advertising 380
VAT recoverable 3,500

EXAM SMART
Input VAT on services incurred prior to registration is subject to a six-month time limit, so
the input VAT of £640 in respect of the advertising expenditure incurred during April 2020
cannot be recovered.
10 T u i t i on ( Co u rse ) e xa mi n at i o n an s we rs ACCA TX

Section C

31 KAT (JUNE/DEC 2018)

EXAMINER’S COMMENTS: PART (a)
Candidates who made sure that they understood the scenario and worked carefully through
each calculation had no difficulty.
As warned in previous reports, where a tax figure is given (here, the corporation tax),
candidates should not recalculate the figure. This wastes valuable time. As regards the
conclusion, this should have been a calculation of the tax difference between the two
scenarios. There was no need for detailed explanation.
Where computations are required for two scenarios, candidates should clearly indicate
which scenario is being answered. This is particularly important where some of the same
information is used in both scenarios. In this case employment income and the personal
allowance were common across both scenarios. Some attempted to answer this question
with just the one computation; impossible given that property income formed part of the
first computation, with dividend income included in the second.
It should have been clear from the information that full computations were necessary for
both scenarios. Those who calculated the tax liability for a personal purchase and then
attempted to adjust the figures for a corporate purchase invariably ended up with a very
confused answer.

(a) Property purchased personally

£
Employment income 61,000
Property income (working) 22,100
83,100
Personal allowance (12,500)
Taxable income 70,600

Income tax
£ £
37,500 at 20% 7,500
33,100 at 40% 13,240
70,600 20,740
Interest relief (£18,000 at 20%) (3,600)
Income tax liability 17,140

Working – Property income

£
Rent received (£2,600 × 12) 31,200
Other expenses (9,100)
Property income 22,100
ACCA TX Co u rs e e xa mi n a t i o n a ns w e rs 11

Property purchased via a limited company NSI Dividend Total

£ £ £
Employment income 61,000 61,000
Dividend income 6,000 6,000
61,000 6,000 67,000
Personal allowance (12,500) (12,500)
Taxable income 48,500 6,000 54,500
£
£37,500 at 20% 7,500
£11,000 (48,500 –37,500) at 40% 4,400
£2,000 at 0% 0
£4,000 (6,000 – 2,000) at 32·5% 1,300
Income tax liability 13,200
Conclusion
If Kat purchases the property via a limited company, then the overall tax saving will be £3,161
compared to purchasing the property personally:
£
Property purchased personally 17,140
Property purchased via a limited company (779 + 13,200) (13,979)
Tax saving 3,161

EXAM SMART
The comparison ignores the fact that not all of the profits are withdrawn under the company
purchase option. However, profits might typically be retained within a company to repay the
mortgage borrowing or to fund a future property purchase.

EXAMINER’S COMMENTS: PART (b)

All that was required was a brief mention (not a detailed answer) of the annual exempt
amount.

(b) The annual exempt amount will not be available if the gain occurs within a limited company.
Marking guide Marks
(a) Kat – income tax
Employment income ½
Personal allowance ½
Income tax at 20% ½
Income tax at 40% ½
Interest relief calculation 1
3
12 T u i t i on ( Co u rse ) e xa mi n at i o n an s we rs ACCA TX

Marking guide Marks

Kat – property
Rent received ½
Mortgage interest allowable 1
Other expenses ½
2
If through company – income
Employment income ½
Dividend income ½
Personal allowance ½
1½
If through company – income tax
Income tax at 20% ½
Income tax at 40% ½
Income tax at 0% ½
Income tax at 32.5% ½
2
Saving ½ ½
9
(b) Gain 1
Maximum marks available 10

32 NA STYLE
EXAMINER’S COMMENTS: PART (a)
There were few problems as regards the calculation of the trading profit.

(a) Na Style – Trading profit

£ £
Net profit 32,550
Depreciation 1,300
Motor expenses (£2,200 × 7,000/8,000) 1,925
Accountancy 0
Legal fees in connection with the grant of a new lease 1,260
Property expenses (£12,900 × 1/3) 4,300
Own consumption 450
Fine 400
Private telephone (£1,200 × 20%) 240
Capital allowances 810
42,185 1,050
(1,050)
Trading profit 41,135

EXAM SMART
 The cost of the grant of a new lease is not allowable.
 Goods for own consumption are valued at selling price.
ACCA TX Co u rs e e xa mi n a t i o n a ns w e rs 13

EXAMINER’S COMMENTS: PART (b)

 There were few problems as regards the calculation of the income tax payable.
 As regards the balancing payment and payments on account, candidates were often not
aware of the relevant dates.

(b)
(i) Na Style – Income tax computation
NSI Dividends Total
£ £ £
Trading profit (from part (a)) 41,135 41,135
Dividends 1,200 1,200
41,135 1,200 42,335
Personal allowance (12,500) (12,500)
Taxable income 28,635 1,200 29,835
Income tax £
£28,635 at 20% 5,727
£1,200 at 0% (Dividend nil rate band) 0
29,835
Income tax liability 5,727

(ii) Tax payments

(1) Na’s balancing payment for 2020/21 due on 31 January 2022 is £2,527
(5,727 – 3,200).
(2) Her payments on account for 2021/22 will be £2,863 (£5,727 × 50%). These will be
due on 31 January and 31 July 2022.

EXAMINER’S COMMENTS: PART (c)

Many did not appreciate that a 5% penalty would be imposed in addition to the interest.

(c)
 Interest is charged where a balancing payment is paid late. This will run from 31 January
2022 to 31 May 2022.
 The interest charge will be £23 (£2,527 × 2.75% × 4/12).
 In addition, a 5% penalty of £126 (£2,527 (tax unpaid at penalty date) at 5%) will be
imposed as the balancing payment is paid between 30 days (the penalty date), and five
months and 30 days, of the due date.
14 T u i t i on ( Co u rse ) e xa mi n at i o n an s we rs ACCA TX

Marking guide Marks

(a) Net profit ½
Depreciation ½
Motor expenses 1
Accountancy ½
Legal fees ½
Property expenses 1
Own consumption 1
Fine ½
Private telephone 1
Capital allowances ½
7
(b) (i) Income tax computation
Trading profit ½
Dividends ½
Personal allowance ½
Income tax 1½
3
(ii) Tax payments
Balancing payment 1
Payments on account 1
2
(c) Interest 1
Calculation 1
Penalty 1
3
Maximum marks available 15

33 LUCKY LTD
EXAMINER’S COMMENTS: PART (a)
Most candidates appreciated that an accounting period starts when a company commences
to trade, but many could not provide any other circumstance. For example, an accounting
period will also start when a company otherwise becomes liable to corporation tax.

(a)
(i) An accounting period will normally start immediately after the end of the preceding
accounting period.
(ii) An accounting period will also start when a company commences to trade, or otherwise
becomes liable to corporation tax.

EXAMINER’S COMMENTS: PART (b)

The aspect of this question which caused the most difficulties was the lease premium
deduction and the difficulties were largely due to a failure to read the question carefully.
Candidates were given the amount of the premium assessed on the landlord as income.
However, many misread this figure as being the total premium paid.
ACCA TX Co u rs e e xa mi n a t i o n a ns w e rs 15

(b) Lucky Ltd – Corporation tax computation

£
Operating profit 799,266
Advertising 0
Depreciation 14,700
Amortisation 9,000
Deduction for lease premium (46,800/12 × 4/12) (1,300)
Capital allowances (working 1) (346,957)
Trading profit 474,709
Interest income 700
Taxable total profits 475,409

Corporation tax (£475,409 at 19%) £90,328

EXAM SMART
The advertising expenditure incurred during September 2020 is pre-trading, and is treated as
incurred on 1 December 2020 It is therefore deductible and no adjustment is required.

Working 1 – Capital allowances

Main Special
pool rate pool Allowances
£ £ £
Additions qualifying for AIA
Integral feature 307,866
AIA – 100% (307,866) 307,866
Computer 6,300
Office equipment 32,900
39,200
AIA (balance) (working 2) – 100% (25,467) 25,467
13,733
WDA – 18% × 4/12 (824) 824
Addition qualifying for FYA
Motor car 12,800
FYA 100% (12,800) 12,800
WDV carried forward 12,909
Total allowances 346,957
Working 2 – Annual investment allowance
The annual investment allowance is reduced to £333,333 (1,000,000 × 4/12) because Lucky Ltd’s
accounting period is four months long.
EXAM SMART
 The expenditure which is integral to the building is included in the special rate pool.
 It is beneficial to claim the annual investment allowance of £333,333 initially against
this integral features expenditure, as it would otherwise only qualify for writing down
allowance at the rate of 6%.
 The computer purchased on 19 August 2020 is pre-trading and is treated as incurred on
1 December 2020.
 The motor car has CO2 emissions of 50 grams per kilometre, and therefore qualifies for
the 100% first year allowance.
16 T u i t i on ( Co u rse ) e xa mi n at i o n an s we rs ACCA TX

(c)
(i) Lucky Ltd must retain the records used in preparing its self-assessment corporation tax
return until six years after the end of the accounting period, which is 31 March 2027.
(ii) A failure to retain records could result in a penalty of up to £3,000 per return. However,
the maximum penalty is only charged in serious cases.
Marking guide Marks
(a) AP starts immediately end of preceding AP 1
AP starts commencement of trade or liable to CT 1
2
(b) CT computation
- Advertising 1
- Depreciation ½
- Amortisation ½
- Deduction for lease premium 1½
- Interest income ½
- Corporation tax ½
Capital allowances calculations
Integral feature 1
Computer ½
Office equipment ½
AIA – 100%/maximum 2
WDA at correct rate and pro rate 1
Motor car (qualifying for FYA/not pro rated) 1½
11
(c) Retain records for 6 years 1
Penalty up to £3,000 per return 1
2
Maximum marks available 15