UNIVERSITY OF BOLTON BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATIONS 2014/15 PERSONAL AND BUSINESS TAXATION MODULE NO: ACC5003

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1 BBS012 UNIVERSITY OF BOLTON BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATIONS 2014/15 PERSONAL AND BUSINESS TAXATION MODULE NO: ACC5003 Date: Thursday 22 nd January 2015 Time: 2:00pm to 5:00pm INSTRUCTIONS TO CANDIDATES: There are 5 questions in this examination 4 questions to be answered as follows: Answer BOTH questions in Section A Answer ONLY TWO questions from Section B This is a closed book examination. You must hand in this exam paper with your answer booklet.

2 University of Bolton Page 2 of 7 SECTION A ANSWER BOTH QUESTIONS FROM THIS SECTION QUESTION 1 David Jameson was born on 22 June He is employed by Soft plc as a robotics engineer where he earns a gross annual salary of 41,000 and PAYE of 9,130 was deducted, and is also self-employed as a mechanic. In addition to his salary he received bank interest of 1,260 and dividends from UK companies of 180. David commenced self-employment on 1 January He had a tax adjusted trading profit of 3,840 for the four-month period ended 30 April 2014, and 12,060 for the year ended 30 April These figures are before taking account of capital allowances. Throughout the tax year , Soft plc provided David with a petrol-powered motor car which has a list price of 17,900. The motor car cost Soft plc 17,200, and it has a CO2 emission rate of 144 grams per kilometre. During the tax year , David made contributions of 1,200 to Soft plc for the use of the motor car. During the period 1 July 2014 to 5 April 2015, Soft plc also provided David with fuel for private journeys. The total cost of fuel during the period 1 July 2014 to 5 April 2015 was 4,200, of which 45% was for private journeys. David did not make any contributions towards the cost of the fuel. Throughout the tax year , Soft plc provided David with living accommodation. The property has been rented by Soft plc since 6 April 2014 at a cost of 1,100 per month. On 6 April 2014, the market value of the property was 122,000, and it has an annual value of 8,600. On 6 April 2014, Soft plc purchased furniture for the property at a cost of 12,100. The company pays for the running costs relating to the property, and for the tax year these amounted to 3,700. David owns a freehold shop which is let out unfurnished. The shop was purchased on 1 October 2013, and during October 2014 David spent 8,400 replacing the building s roof. The shop was not usable until this work was carried out, and this fact was represented by a reduced purchase price. During November 2014, David spent 800 on advertising the property for rent. On 1 December 2014, the property was let to a tenant, with David receiving a premium of 12,000 for the grant of a 30-year lease. The monthly rent is 830 payable in advance, and during the period 1 December 2014 to 5 April 2015 David received five rental payments. Question 1 continues overleaf PLEASE TURN THE PAGE

3 University of Bolton Page 3 of 7 Question 1 continues Due to a fire, 8,600 was spent on replacing the roof of the shop during February Only 8,200 of this was paid for by David s property insurance. David paid insurance of 480 in respect of the property. This was paid on 1 October 2014 and is for the year ended 30 September Calculate the income tax payable by David Jameson for the tax year 2014/15. (30 Marks) QUESTION 2 Knight Ltd is a UK resident company in the metal fabrication sector. The companies summarised income statement is below for the year ended 31 March Notes Gross profit 876,500 Depreciation (85,660) Amortisation of leasehold property 1 (6,000) Gifts and donations 2 (2,700) Professional fees 3 (18,800) Other expenses 4 (230,240) Bank interest 5 12,400 Dividends 6 54,000 Gain on disposal of non-current assets 80,700 Interest payable 7 (60,800) Profit before taxation 619,400 Notes: 1) Leasehold property: On 1 April 2014 Knight Ltd acquired a leasehold office building, paying a premium of 60,000 for the grant of a new 10 year lease. The office was used by the business for the whole financial year. 2) Gifts and donations included gifts to customers of pens with the company name at a cost of 60 each totalling 1,200. These customers also received food hampers at a cost of 25 each totalling 1,100. A Donation of 400 to a local charity whereby the company received free advertising in the charity magazine. Question 2 continues overleaf PLEASE TURN THE PAGE...

4 University of Bolton Page 4 of 7 Question 2 continues 3) Professional fees include 3,600 in connection with the renewal of the 45 year lease of the company warehouse and 15,200 of legal fees for the issue of the debentures (see note 7). 4) Other expenses include 1,300 for entertaining suppliers and 900 for entertaining the employees of Knight Ltd. 5) Bank interest was received on 31 March The bank deposits were held for non-trading purposes. 6) Dividends received: during the year ended 31 March 2015 Knight Ltd received 54,000 from its investments in UK un-connected companies. 7) Interest payable: this is in respect of the companies 5% debentures that were issued on 1 April Interest of 30,400 was paid on 30 September 2014 and again on 31 March ) The tax written down values on 1 April 2014 for plant and machinery were as follows: Main pool 16,800 Special rate pool 18,400 The following transactions took place during the financial year ended 31 March 2015: 21 May 2014 Purchased equipment 12, July 2014 Purchased car (1) 9, August 2014 Purchased car (2) 16,200 8 October 2014 Purchased lorry 17,200 9 March 2015 Sold equipment (3,300) Car (1) was purchased on 16 July 2014 for 9,800 and has a CO2 rating of 155g/km. Car (2) purchased on 13 August 2014 for 16,200 was a low emissions car with CO2 emissions less than 90g/km. The equipment sold on 9 March 2015 for 3,300 was originally purchased in 2005 for 8,900. Calculate Knight Ltd s corporation tax payable for the year ended 31 March End of Question 2 (Total 30 Marks) END OF SECTION A

5 Page 5 of 7 University of Bolton PLEASE TURN THE PAGE QUESTION 3 SECTION B ONLY 2 QUESTIONS TO BE ATTEMPTED The following items have been charged against profit in the accounts of Billy Bridge, a boot manufacturer, for the year ended 31 March, 2015: 1. In Repairs and Renewals an amount of 2,000 was included for the fitting of security bars over the factory windows as a precaution against theft. 2. A loan of 100 to a former employee was written off. 3. Gifts of Bridge calendars in December 2014 costing 12 each. 4. Incidental costs incurred in obtaining a bank loan, A donation of 5 pairs of climbing boots, costing a total of 200, when sponsoring a local charity raising money by organising a marathon rock climb. 6. A lease rental of 4,000 per annum on a car provided for a senior employee. The car cost 14,000, has CO 2 emissions of 125 g/km and the lease commenced in Registering a patent for a new shoe design, 1, A parking fine of 100 incurred by an employee (not Billy) on a business trip to Blackpool. 9. Payment of 6,000 re-location expenses to a new employee. 10. In Repairs and Renewals an amount of 2,000 to re-condition a second-hand gluing machine bought for 10,000. The repairs were necessary before the machine could be used in the business. 11. Cost of a course in computer skills, costing 350, for Billy himself who had no previous computer experience. You are required to state how you would deal with each of the items when preparing the tax adjusted profit computation for the year ended 31 March, In addition you should give a brief explanation for your treatment of each item. (20 Marks)

6 Page 6 of 7 University of Bolton PLEASE TURN THE PAGE QUESTION 4 Albert Duff has invested his lottery winnings in four properties which he lets out. The following information relates to the 2014/15 tax year. Property A: This is a freehold semi-detached house in Manchester which Albert lets out unfurnished. The property was let for the whole of 2014/15 at a monthly rental of 575 which is payable in advance. During this tax year Albert paid council tax amounting to 1,200 and buildings insurance of 340 in respect of this property. He claims the wear and tear allowance for this property and made no capital purchases for the property. Property B: This is a freehold detached house in Bolton and it is also let out unfurnished. The property was purchased on 6 March 2014 and was empty until 30 June It was then let from 1 July 2014 to 31 January 2015 at a monthly rental of 710 payable in advance. On 31 January 2014 the tenant left owing 3 months rent and Albert was not able to recover this, the property was not let until 6 April During the 2014/15 tax year Albert paid 290 on insurance for this property as well as 670 for advertising. Albert had financed the purchase of this property with a loan on which he paid interest of 500 during the year. Property C: Albert owns an office block that he lets out unfurnished; he pays annual rent of 6,800 for this property and did not pay a premium when he acquired it. On 6 April 2014 the property was let to a sub-tenant with Albert receiving a premium of 15,000 for the grant of a 5 year lease. He also received the annual rent of 4,600 which was payable in advance, Albert paid property insurance on this office block for the year of 360. Property D: During the 2014/15 tax year Albert rented out a furnished room in his main residence. During the year he received rent of 5,040 and incurred allowable expenditure of 1,140 in respect of the room. Calculate Alberts property business profits in respect of the three properties and the furnished room for the 2014/15 tax year. (20 marks)

7 Page 7 of 7 University of Bolton PLEASE TURN THE PAGE... QUESTION 5 Part A Steph commenced self-employment on 1 August She has a trading profit of 45,960 for the year ended 31 July 2013, and a trading profit of 39,360 for the year ended 31 July Calculate the amount of trading profit which will have been assessed on Steph for each of the tax years , and , and state the amount of any overlap profit. (3 marks) Explain how Steph would have obtained relief for trading expenditure incurred prior to 1 August 2012 and for computer equipment which Steph already owned which was brought into business use on 1 August (2 marks) Part B Stuart, Dorota and Kalina have been in partnership since 2003, preparing accounts to 30 June. Kalina left the partnership on 31 October Profits have always been shared equally. The partnership had a trading profit of 148,800 for the year ended 30 June 2013, and a profit of 136,800 for the year ended 30 June Each partner has unused overlap profits brought forward of 29,400. Calculate the trading income assessments of Stuart, Dorota and Kalina for each of the tax years and (15 marks) (Total 20 marks) END OF QUESTIONS