FWA Revision 202210

MCQs

1. _________is a capital tax.

A. Inheritance tax
B. Income tax
C. National insurance contributions
D. Value added tax

2. Which of the following sources of revenue law provide useful guidance to the taxpayers
but generally have no legal force?
A. Primary legislation
B. Secondary legislation
C. HMRC publications
D. Case law

3. Which of the following is a case of tax evasion?

A. contributions to tax-free individual savings accounts (ISAs)
B. donating larger amounts to approved charities
C. making contributions to personal pension plans in excess of available allowances
D. Failing to inform HMRC that you are liable to tax

4. Roy has been not resident in or visited the UK in any tax year prior to the tax year
2020/21. In May 2020, he bought a house in UK and spent 160 days in UK in the tax year
2020/21. Roy did not work in the UK and has no home overseas. What is Roy’s tax
residence status for the tax year 2020/21?
A. Automatically UK resident
B. Automatically not UK resident.
C. Resident because of sufficient UK ties
D. Non-resident because of insufficient UK ties
5. Which of the following is a tax-exempt income?
A. Income from self-employment
B. Child benefit received when adjusted net income is < £50,000 in a tax year
C. Pension income
D. Income earned overseas by a UK resident taxpayer

6. Rizwan makes chargeable gains of £21,900 during the tax year 2020/21. Losses brought
forward from the tax year 2019/20 are £4,000. What is the amount of taxable gains for
Rizwan for the tax year 2020/21?
A. £17,900
B. £12,300
C. £9,600
D. £5,600

7. The latest date for filing a personal paper return for the tax year 2020/21 where notice
to file tax return issued by HM Revenue & Customs on 15 May 2021 is__________.
A. 15 May 2021
B. 31 October 2021
C. 31 December 2021
D. 31 January 2022

8. Mona has tax written down value on her main pool of plant and machinery of £16,000
on 6 April 2020. In the year to 5 April 2021 she bought a plant for £8,000 and disposed
of a van, which originally cost £6,000, for £4,000. What is the amount of maximum
capital allowances that Mona can claim for the year ended 5 April 2021?
A. £2,160
B. £3,600
C. £2,880
D. £1,800
9. Hill View Limited published accounts for the year ended 31 March 2021 in April 2021
and filed tax return for the financial year 2020 in November 2021. If no any compliance
check enquiry related to FY 2020 is pending or expected, Hill View Limited must keep the
records up to__________.
A. 31 March 2027
B. 31 March 2022
C. 30 November 2027
D. 31 December 2021

10. Marvin Ltd prepares accounts to 31 March every year. What is the date by which Marvin
Ltd must file a tax return for the accounting period ended 31 March 2021 to avoid late
filing penalties? HMRC notice requiring the return for this period was received on 15
April 2021.
A. 14 July 2021
B. 31 December 2021
C. 31 March 2022
D. 1 January 2022
Problem Solving Questions (90 possible marks)
Question 11: Chapter 2: Assessing income tax liability

11. Anderson works for JQM Ltd. He also owns a property which was let out throughout the
tax year. Following information relates to the tax year 2020/21:

£
Employment income (before deduction of PAYE tax) 96,500
Property business income (all taxable) 13,500
Dividends 1,500
Building society interest 2,200
Bank deposit interest 600
PAYE tax deducted 32,000
Required:
Assess the income tax payable by Anderson for the tax year 2020/21. (20 marks)
Answer:
Non-savings Savings Dividend Total
Income income income
£ £ £ £
Employment income 96,500
Property income 13,500
Building society interest 2,200
Bank deposit interest 600
Dividends 1,500
Net income 110,000 2,800 1,500 114,300
Less: personal allowance (5,350)
Taxable income 104,650 2,800 1,500 108,950
Computation of income tax payable:
Non-savings income £ £
£37,500 x 20% 7,500
(£104,650 – 37,500) x 40% 26,860 34,360
Savings income
£500 x 0% 0
 £2,300 x 40% 920 920
Dividend income
£1,500 x 0% 0
Total tax on income 35,280
Less PAYE tax (32,000)
Tax payable 3,280

Revised personal allowance:

Net income £114,300
Less: limit (100,000)
Excess 14,300
Half of excess (14,300/2) 7,150
Available personal allowance (£12,500 – £7,150) 5,350

If the Total Net income is 125,000 or more the allowance will be 0. (Chapter 2)
Question 12: Chap 10: Assessing carry forward losses

12. Graham has been a sole trader for many years preparing accounts to 31 March each
year. His recent results have been as follows:
Year ended March 31, 2020 profit £35,000
Year ended March 31, 2021 loss (61,800)
Graham received taxable property business income of £10,600 in 2019/20 and £11,800 in
2020/21.
Required:
Assess Graham’s taxable income for 2019/20 and 2020/21 and determine the amount of
trading loss to carry forward to tax year 2021/22, if he wishes to claim loss relief against the
general income of the current and the preceding year (quickest claim). (10 marks)

Answer:

2019/20 2020/21

Trading income 35,000 0

(Because loss)

Property income 10,600 11,800

Total income 45,600 11,800

Less: loss relief 45,600) (11,800)

Net income 0 0

Less: Personal Allowances (12,500) (12,500)

Taxable income 0 0

The amount of loss to carry forward to the tax year 2021/22 is £4,400
(61,800 – (11,800 + 45,600) = 4,400
(Loss- Total income)
Question 13: Chap 11: Assessing partnership profits
13. Peter and Noreen are running a partnership business since 2016 and prepare accounts
to 31 March each year. For the year ended 31 March 2021, taxable trading profits are
£90,000. Peter is allocated an annual salary of £10,000 and the remaining profits are
then shared between Peter and Noreen in the ratio of 1:2. However, on 31 May 2020
they agreed to new terms that allow annual salaries of £10,000 to each partner and
equal share of remaining profit or loss.
Required:
Assess taxable income of each partner assuming none of the partners has any other
income for the tax year 2020/21. (10 marks)
Answer:

Total Peter Noreen

Total Profit before allocation 90,000
Profit ( April – May 2020) 15,000
90,000 x 2/12 = 15,000
Salaries ( 10,000 x 2/12) = 1,667 (1,667) 1,667
Allocation of Remaining profit (13,333) 4,444 8,889
(15,000 – 1,667) = 13,333 13,333x 1/3 13,333x 2/3
Profit (June 20-March 2021) 75,000
New agreement
Salaries (June –Mar 2021) (16,667) 8,333 8,333
(10,000+10,00) x 10/12 10,000x 10/12
Balance after salaries (75,000- 58,333
16,667)
Allocation of remaining profits (58,333) 29,167 29,167
58,333 x 50%
Profit allocated to each partner 90,000 43,611 46,389
Less: Personal allowance (12,500) (12,500)
Taxable income of each partner 31,111 33,889
 Question 14: Chapter 18: Assessing IHT liability

Peter made a gross chargeable lifetime transfer of £305,000 in January 2016. He also
transferred £1,900 to his friend Malcom in January 2020. In August 2020, he makes a
transfer of £390,000 to a trust for the benefit of his grandchildren. The trustees (donee)
pay the tax arising from the gift.
Required:
Assess lifetime inheritance tax liability in respect of Peter’s gift of £390,000. He has not
paid any tax on the gift made in January 2020 since it was covered by the annual
exemption for the tax year 2019/20.

Answer:
£

Gift 390,000
Less: Annual Exemption 2020/21 3,000
AE 2019/20 1,100 (4,100)
Net chargeable transfer 385,900
Less: nil rate band remaining £(325,000 – 305,000) (20,000)
Inheritance payable 365,900
IHT@20%*365,900 73,180

Unused (3,000 – 1,900)= 1,100

Nil rate band = 325,000

Rate of tax on excess (Lifetime rate) = 20%

Question 15: Chap 19: Assessing corporation tax liability
15. Ravi Ryan Ltd manufactures chemicals for use in textile industries. Ravi Ryan Ltd is a UK
resident company and prepares accounts to 31 March every year. The company’s statement of
profit or loss for the year ended 31 March 2021 is as follows:

Notes £ £
Gross profit 1,222,000
Other income
Dividends income 1 30,000
Profit on sale of business premises 2 54,800
Property rental income 3 15,000
Bank interest 4 18,320
118,120
Expenses
Impaired debt (all trade) 8,500
Depreciation 191,600
Professional fees 5 42,000
Repairs and renewals 6 128,000
Other expenses 7 72,000
(442,100)
Interest payable 8 (41,900)

Profit before taxation 856,120

Notes:

1) Dividends income of £30,000 was received from a UK company.

2) Profit on sale of business premises
Business premises were sold on 15 October 2020 for £590,000. The chargeable gain
on sale has been computed to £49,800.
3) Property rental income was received during the year in respect of a commercial
property held as an investment and is let out to an unconnected company. Rental
amount received covers the rental period from 1 April 2020 to 31 March 2021.
4) Bank interest received
The bank interest is the amount accrued to 31 March 2021 on deposits not held for
trading purposes.
 5) Professional fees are as follows:
Legal fees in connection with the issue of loan notes (N.8) £9,700
Legal fees in connection with fine for breach of health and safety rules 2,100
Accountancy and audit fee 15,400
Legal fees in connection with the issue of share capital 14,800
42,000
6) Repairs and Renewals
Repairs and renewals includes £90,700 for constructing an extension to the
company’s manufacturing premises and £37,300 for repainting interior of the
company’s headquarter.
7) Other expenses
Other expenses include:
Charitable donation to a qualifying local charity £8,000
Entertaining customers 3,200
8) Interest payable
A note was issued on 1 August 2020, proceeds of which was used for trading
purposes. Interest amount given in the profit statement was paid on 31 March 2021
and is the amount accrued to that date.
9) Maximum capital allowances that company can claim for the period are £346,715
Required:
a. Assess Ravi Ryan’s tax adjusted trading profits for the year ended 31 March 2021.
Start with the profit before taxation of £856,120 and list all of the items in the
statement of profit and loss indicating by the use of a zero (0) any items that do not
require adjustment. Assume that the company claims maximum available capital
allowances. (13 marks)
b. Assess Ravi Ryan Ltd’s taxable total profits for the year ended 31 March 2021.
(5
marks)
c. Assess the corporation tax liability of Ravi Ryan for the year ended 31 March 2021.
(2
marks)
Answer:
 a.
£ £
Profit before taxation 856,120
Add:
Impaired debt (all trade) 0
Depreciation 191,600
Accountancy and audit 0
Legal fee-share capital 14,800
Legal fees-loan notes 0
Legal fees-health & safety 2,100
Repairs and renewals: extension 90,700
Repairs and renewals: repainting 0
Entertaining customers 3,200
Other expenses: qualifying charitable donation 8,000
Interest payable 0 310,400
Deduct:
Dividends income 30,000
Profit on sale of building premises 54,800
Property rental income 15,000
Bank interest 18,320
Capital allowances 346,715 (464,835)
Profit adjusted for tax purposes 701,685

b.

Trading profit £701,685

Chargeable gain 49,800
Property rental income 15,000
Bank interest 18,320
Total profits 784,805
Less qualifying charitable donation (8,000)
Taxable total profits 776,805
 c.

Corporation tax liability £776,805 x 19% = £147,593

Question 16: Chapter 24: Assessing VAT liability

Q16. Franco is a VAT registered trader. He provides following information for the quarter ended 30
June 2020. All figures are exclusive of VAT, unless stated otherwise.

Sales: (output vat)

Standard rated sales £325,000
Standard rated sales include goods sold for £25,000 to Marwa Traders on credit. The invoice
issued to Marwa stated that there is a discount of 4% on sales if invoices are paid within 15
days. The invoice was actually paid 10 days after the issuance.
Purchases:
Standard rated £175,000
Zero rated 15,000
Expenses: (input tax)
Standard rated expenses inclusive of VAT 75,000
Other transactions:
Purchased a motor car partly used for private purposes 18,000
Purchased an item of machinery 49,000
Sold a van (VAT was recovered when purchased) 9,000
Sold a motor car 5,200
(Partly used for private purposes, VAT was not recovered on purchase)
Required:
Assess VAT liability of Franco for the quarter ended 30 June 2020.
Answer:

Output tax: Sales transactions) Buy)

Standard rated sales discount not taken 60,000

(325,000-25,000=300,000) (£300,000 x 20%) The amount of VAT
300,000 is not with the discount and 20% in the standard rate output, that don’t
include discount

Standard rated sales discount taken (£25,000 x0.96 x 20%) 4,800

(100% - 4% = 96%) because there is discount
If there are not its 100%

Sale of motor car (not subject to VAT) (for private use) 0

Sale of van (£9,000 x 20%) 1,800

Total output tax 66,600

Input tax: (Sale)

Expenses inclusive of VAT (£75,000 x 20/120) 12,500

(VAT proportion = consideration *20/120) (1/6) slide 13

Purchase of motor car (not recoverable) 0

 Purchase of machinery (£49,000 x 20%) 9,800

Standard rated purchases (£175,000 x 20%) 35,000

Zero rated purchases (15,000 x 0%) 0

Total input tax 57,300

VAT payable ( 66,600 - 57,300 = 9,300) £9,300

(Output tax – input tax)

VAT return = the output is less than input tax