Accounting Technicians Ireland 2 nd Year Examination: Summer 2015 Paper: ADVANCED TAXATION (Northern Ireland) Thursday 14 May 2015 2.30 p.m. to 5.30 p.m. INSTRUCTIONS TO CANDIDATES PLEASE READ CAREFULLY For candidates answering in accordance with the law and practice of Northern Ireland. Candidates should answer the paper in accordance with the appropriate provisions up to and including the Finance Act, 2014. The provisions of the Finance Act, 2015 should be ignored. Allowances and rates of taxation, to be used by candidates, are set out in a separate booklet supplied with the examination paper. Answer ALL THREE QUESTIONS in Section A, and ANY TWO of the FOUR questions in Section B. If more than TWO questions are answered in Section B, then only the first two questions, in the order filed, will be corrected. Candidates should allocate their time carefully. All workings should be shown. All figures should be labelled as appropriate e.g. s, units, etc. Answers should be illustrated with examples, where appropriate. Question 1 begins on Page 2 overleaf. The following insert is included with this paper. Tax Reference Material (NI) Page 1 of 11 Adv. Taxation (NI) S2015
SECTION A Answer QUESTION 1 and QUESTION 2 and QUESTION 3 (Compulsory) in this Section QUESTION 1 (Compulsory) Colin aged 34 is a self-employed plumber for a number of years and has been preparing accounts to 31 st December each year. Details of his income and expenses for 2014/15 were as follows: INCOME: Tax adjusted trading profits Year end 31 st December 2014 48,700 Year end 31 st December 2015 42,400 Rental Income 8,000 Building Society Interest (amounts received) 4,800 Dividends received from UK Companies 6,300 PAYMENTS Gift Aid donations to approved charities (net) 4,200 Income Tax Payments on Account 12,560 His Capital Gains Tax Liability for 2014/15 amounted to 6,275 i. Calculate Colin s IT and N/C Liabilities for 2014/15. ii. Calculate Colin s 2014/15 outstanding Income Tax due and N/C due, state the date payment will be due. iii. Calculate Colin s payment on account for 2015/16 and state the date payment will be due. iv. Outline the consequences of Colin not paying the balancing payment for 2014/15 by the due date. v. The due date by which Colin should file his tax return for 2014/15 assuming he wishes to file for a paper return. vi. For how long must Colin retain his accounting records for the accounting year in question. TOTAL MARKS 9 marks 2 marks 2 marks 3 marks 2 marks 2 marks 20 marks Page 2 of 11 Adv. Taxation (NI) S2015
QUESTION 2 (Compulsory) The following multiple choice question consists of TEN parts, each of which is followed by FOUR possible answers. There is ONLY ONE right answer in each part. Each part carries 2 marks. 1. Heather who is self-employed had an Income Tax liability in 2014/15 of 8,642. She had submitted the 2014/15 Income Tax Return on 31 st August 2016 along with the payment due. The late filing penalty payable by Heather will be: a) NIL as the payment was submitted along with the return due b) 100 c) 2,120 d) 1,432 2 An individual born on 4 th July 1960 who has income from self-employment of 120,000 and personal pension contribution (net) of 4,000 will have an Income Tax Liability in 2014/15 of: a) 41,627 b) 40,627 c) 39,627 d) 37,627 3 Paul is registered for VAT and issues invoices for electrical services with a standard price of 480. He offers a settlement discount to all his customers provided they settle the invoice within 10 working days. The total amount shown on the invoice to the customer is 541.44, what is the rate of discount that has been offered, assuming the customer pays after 10 days: a) 6% b) 5% c) 4% d) 3% 4 Smart Ltd a VAT registered business bought a new company car some years ago for 24,000 plus VAT. The Company correctly reclaims the Input VAT at the time the car was purchased. Smart Ltd has agreed the sale of the same car to a private individual. Which of the following is true: a) Output VAT should not be charged on the sale of the car as the individual is not VAT registered. b) Output VAT should be charged on the sale of the car as the Input VAT on its purchase was reclaimed by Smart Ltd. c) Output VAT should not be charged on the sale of the car because it is not a taxable supply. d) Output VAT should not be charged on the sale of the car because the standard rate VAT has changed since the date of purchase. Page 3 of 11 Adv. Taxation (NI) S2015
5 Frances sold a piece of equipment in October 2014 for 8,000 on which Capital allowances have been claimed. The asset cost 3,000 and Capital allowances of 690 have been claimed. The chargeable gain in 2014/15 will be: a) 5,000 b) 690 (limited to Capital Allowances claimed) c) 3,333 d) NIL (as asset cost < 6,000) 6 In February 2015 Lewis sold one sixth of his land for 42,000. He had purchased the whole plot of land in 1975 for 9,000 and its market value on 31 st March 1982 was 28,000. In February 2015 the value of the remaining land was 190,000. The chargeable gain on sale of the land sold will be: a) 35,000 b) 14,000 c) 36,931 d) 35,810 7 Laura Allen has a twelve month accounting period ending on 30-09-2014. In January 2014 she purchased the following: - A van for 18,000 (private use 20%) - A car with CO 2 emissions of 125g/km for 20,000 (private use 40%) - Machines for 30,000 Assuming there were no written down values B/F from previous years, the maximum Capital Allowances claim for the year is: a) 46,560 b) 51,600 c) 68,000 d) 45,360 8 Tony commences business as a sole trader on 1 st February 2014. He makes his first set of Accounts up to 30 th April 2015 and to 30 th April each year thereafter. What is the basis period for the tax year 2014/15 a) 1 st February 2014 to 30 th April 2015 b) 1 st May 2014 to 30 th April 2015 c) 1 st February 2014 to 31 st January 2015 d) 6 th April 2014 to 5 th April 2015 Page 4 of 11 Adv. Taxation (NI) S2015
9 If an accounting period is longer than 12 months which of the following is correct: a) The trading profits for the long period are adjusted for tax purposes (before capital allowances), and the result is time-apportioned into two chargeable accounting periods. Separate capital allowance computations are carried out for each chargeable accounting period, and then deducted from each of the adjusted trading profits. b) Provided the accounting period is not more than 18 months long, the whole period can form one accounting period. c) The capital allowances are calculated for the long accounting period and deducted from the adjusted trading profits for the long accounting period. This is then time-apportioned into two chargeable accounting periods. d) The trading profits for the long accounting period are time-apportioned into two periods before tax adjustments are carried out to each period s profit. Capital allowances are calculated for the long period and then time-apportioned, before being deducted from each period s adjusted profits. 10 Genesis Limited a company with no associate companies has the following results for the year ended 31-03-2015: Trading profits 1,340,000 Rental Income 260,000 Chargeable Gains 220,000 Dividends received 180,000 The company also has the following losses brought forward from the previous chargeable accounting period: Trade losses 130,000 Capital losses 50,000 Corporation Tax payable for the period will be: a) 386,400 b) 344,400 c) 382,200 d) 354,900 Page 5 of 11 Adv. Taxation (NI) S2015
QUESTION 3 (Compulsory) Ivanhoe Limited Ivanhoe Limited runs a number of hotels and guesthouses and in the Accounting Period for year end 31-12-2014 the company has decided to dispose of a number of assets/shares in the 1 st quarter of the year to release some capital to fund intended expansion plans. Details of the disposals in the period include: Date Asset Disposed Proceeds Cost 01-01-2014 10,000 shares in Vanguard Ltd 150,000 25,000 shares bought 01-01-1988 17,000 @ 5 each 01-01-1993 8,000 @ 7 each 10-01-2014 Antique Dresser 7,500 06-01-1996 2,500 29-01-2014 Shoe Cleaning Machines (10) 1,000 Jan 1996 5,000 (Capital Allowance had been claimed on these 15-02-2014 Land (part disposal) 100,000 Jan 1990 80,000 Whole plot purchase (MV of remaining 300,000) 28-03-2014 Office Building 200,000 04-09-1995 60,000 09-06-2000 40,000 extension 31-03-2014 1,000 shares in Franco Ltd 15,000 10-09-1995 6,000 The indexation factors have been calculated as follows: January 1988 to January 1993 0.335 January 1990 to February 2014 1.127 January 1993 to January 2014 0.832 September 1995 to March 2014 0.692 January 1996 to January 2014 0.682 June 2000 to March 2014 0.489 The company has Capital losses b/f of 20,000. i. Calculate the chargeable gain or capital loss on each disposal. 18 marks ii. Calculate tax for the Capital year end 31-12-2014 2 marks Page 6 of 11 Adv. Taxation (NI) S2015
SECTION B Answer ANY TWO of the FOUR questions in Section B QUESTION 4 Taxperts Limited a) You have been employed by Taxperts Ltd for some time now and have met a new client who has asked you to respond to a few VAT queries they have. They have only recently been registered for VAT and have asked you to answer the following: i. A customer has been billed on the 27 th July for goods totaling 98 plus VAT. The terms of the invoice however, state that a 10% discount will be applied if the customer settles within 10 days. The customer pays the bill on 12 th August. Can you confirm how much VAT should be charged and how much the total invoice will be? ii. On 16 th July 2015 the company received a payment on account of 5,500 (inc VAT) in respect of an ongoing contract that will be completed in October 2015. The total value of the contract will be 22,500 (inc VAT). The company are unsure how we should deal with these monies received as the contact is not yet complete. iii. The company s sales manager Catherine is provided with a company car. The car is a Peugeot 308 Hdi (diesel) with CO 2 emissions 176 g/km. Although Catherine uses the car mainly for work, it is estimated that of the 620 diesel paid this quarter for Catherine, 20% of this would constitute private use. How should the company deal with this in the VAT return? iv. In preparation for the Christmas market the company have been preparing a book and toy bundle as a single gift. They understand that the book is a zero rated item for VAT purposes but the toy will be standard rate. The cost of these items will be: Book 7 Toy 12 It is intended to sell together at a selling price of 25 excluding VAT. Can you advise how much output VAT should be charged on the product? v. Stock with a selling price of 240 (exc VAT) has been given as a gift to a customer last month. The company has a mark up on such goods of 25%. The company are unsure how much, if any, output VAT should be accounted for on such goods. vi. On 1 st July the company has for the first time decided to let out part of it s warehousing facilities as office accommodation. The managing director has advised that it is to be let out on a 5 year lease at an annual of 30,000 pa. An interested tenant has made enquires but we are unsure if VAT is chargeable or not. Can you please advise? vii. Trade continues to develop whereby we are selling goods and services within the EU. Can you please advise what VAT, if any, should be charged: i) if the buyers in the other EU state is registered for VAT in that state. ii) if the buyers in the other EU state is not registered for VAT. 10 marks Page 7 of 11 Adv. Taxation (NI) S2015
b) Hilary is preparing to complete her VAT return for Q/E 31-03-2015. Figures for outputs and inputs net of VAT where applicable are as follows: OUTPUTS Sales/services taxable at the Standard Rate 120,640 Sales/services taxable at Zero Rate 76,210 Sales/services exempt from VAT 38,942 INPUTS Purchases/expenses relating directly to Standard Rate supplies 77,880 Purchases/expenses relating to Zero Rate supplies 36,384 Purchases/expenses relating to exempt supplies 1,290 Purchases/expenses not yet related to either 4,310 Calculate the total VAT payable/repayable in the quarters stated if Hilary passes the de minimis limit tests (original or simplified) for the quarter. 10 Marks QUESTION 5 a) Topsy has been trading for many years, making up accounts to 30 April each year. His recent adjusted profits have been: Y/E 30 th April 2013 22,400 30 th April 2014 27,520 30 th April 2015 29,485 Required What profits will be assessed to tax in the 2014/15 year? Explain your answer 4 marks b) Turvy who has been trading for many years making up accounts to 31 st January ceased to trade on 31 st October 2014, overlap profits on commencement of the business forward have been 8,642. His recent results have been as follows: Y/E 31 st January 2013 18,102 31 st January 2014 16,492 31 st October 2014 12,370 Required What will be the assessment to tax in respect of this income trade in the final years of assessment? 4 marks Page 8 of 11 Adv. Taxation (NI) S2015
c) Tim commenced self-employment on 1 st March 2013 making up 1 st accounts to 31 st December 2013 and annually thereafter. His results have been as follows: p/e 31 st December 2013 8,490 y/e 31 st December 2014 17,246 y/e 31 st December 2015 19,540 7 marks Required Identify the dates and amounts of Overlap profits and outline when Tim will be able to claim relief for any such profits d) Tom commenced trading on 01-02-2012 and prepared his first accounts to 30 th June 2013 and annually thereafter. His adjusted profits were as follows: p/e 30 th June 2013 48,500 y/e 30 th June 2014 42,000 y/e 30 th June 2015 44,750 Required Calculate Tom s assessable trading profits for all relevant tax years and identify if relevant dates and amounts of any profit overlap. 5marks QUESTION 6 Miranda Dirk Miranda Dirk is a sales director employed by Outdoor Play Limited (OPL) a UK registered company who supply and install a wide range of outdoor play toys in Northern Ireland. Miranda has been head hunted from a major retailer in London and OPL have persuaded her to take up a position with them in January 2014 in Northern Ireland. Bills paid by the company for relocation expenses amounted to 10,175. Miranda has been provided with accommodation since her arrival in a flat purchased by OPL for 125,000, and has an annual value of 6,300. It is not considered that this accommodation could be described as job related. The employer also bought furniture for the flat costing 5,800. Other household expenses met by the company in respect of Miranda s new flat were as follows: Electricity 485 Redecoration 870 Monthly maintenance 420 TOTAL 1,775 Miranda enjoys a generous package that includes the following: a) Her gross salary for the year was 56,000 (PAYE 8,065). She paid 5% of her salary into a company pension scheme and her employer contributed 9% into the same scheme. b) During the year Miranda had use of a company car, a Mercedes C320cdi that cost the company 29,600 although the list price was 32,600. The car is a diesel with CO 2 emission of 220g/km and the company paid for all running costs of the car including fuel of 1,850, insurance of 485 and repairs of 2,140. Page 9 of 11 Adv. Taxation (NI) S2015
c) Miranda is also provided with a new computer to use at home for the whole tax year. This cost the employer 650 (inc. printer and other accessories) and remains the property of the company. The computer was valued at the end of the tax year at 300. d) As a bonus Christmas 2014, Miranda was given vouchers to spend in a Belfast department store. The retail value of the vouchers was 1,000 and these cost Outdoor Play Limited 850. e) On 6 th September 2013 Miranda was provided with a company loan of 24,000 on which she pays interest at 3% per annum. On 6 th January 2015 Miranda repaid 4,000 Miranda s other income and expenses in 2014/15 were as follows:- Pension from previous employers 19,250 (PAYE deducted 3,850) Interest received from deposit a/c in NatSouth Bank 780 Dividends received from UK companies 4,950 Payment of 1,360 to charities under the Gift Aid scheme. i. Calculate the total Income from employment package chargeable on Miranda for 2014/15. ii. Calculate Miranda s outstanding Income Tax Liability for 2014/15. 10 marks 10 marks QUESTION 7 a) Parsley Limited makes up its accounts for the 18 months ended 31 st December 2015. The Company s trading results for that period are as follows: Trade profits (before capital allowance) 140,000 Chargeable Gains (disposal 11 th Nov 2015) 16,750 Property Income received (accruing at 675pm) 11,475 Qualifying Charitable Donations (paid 4 th Sept 2015) 9,700 What are the profits chargeable to Corporation Tax? 5 marks b) Ages Ltd a UK registered company with no associates has prepared accounts for the 9 months ended 31 st December 2014 showing adjusted trade profits (before Capital Allowance) of 1,200,000. Calculate the Corporation Tax payable for these profits. 2 marks c) Rosemary Ltd has a 12 month Chargeable Accounting Period ending 31 st Jan 2015. Adjusted Trading Profits for the period amounted to 1,200,000 and received Dividends from the companies of 108,000 (net). Page 10 of 11 Adv. Taxation (NI) S2015
Calculate the Corporation Tax payable on these profits. 8 marks d) Thyme Ltd has one associated company. Taxable total profits for the year ended 31 st March 2015 amount to 625,000 and Dividends received (net) amount to 49,500. i. Calculate the Corporation Tax payable on these profits. ii. State the due date of payments. 4 marks 1 mark Page 11 of 11 Adv. Taxation (NI) S2015