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Tax Compliance Exam March 2022, Lecture notes of Finance

Brunel University LondonFinance

Assume that the Finance Act 2021 rates and allowances as set out in the ICAEW Learning Materials for exams in 2022 will continue to apply in ...

Typology: Lecture notes

2021/2022

Uploaded on 09/27/2022

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PROFESSIONAL
LEVEL
TUESDAY 8 MARCH 2022
2.5 HOURS
TAX COMPLIANCE
This exam consists of five questions (100
marks).
Marks breakdown
Question 1 7 marks
Question 2 13 marks
Question 3 25 marks
Question 4 20 marks
Question 5 35 marks
Assume that the Finance Act 2021 rates and
allowances as set out in the ICAEW
Learning Materials for exams in 2022 will
continue to apply in 2021/22 and future
years unless you are specifically instructed
otherwise.
The Hardman's Tax Rates and Tables book
is available as a resource in each question.
Important Information:
1. Please read the instructions carefully before
you begin your exam.
Starting and ending the exam
2. Click on the right arrow in the header to
begin the exam. The exam timer will begin to
count down.
3. When the exam timer reaches zero, the
exam will end. To end the exam earlier,
navigate to the last question and click the
right arrow button. Click the Submit button to
close the exam.
Encountering issues during the exam
4. If you encounter any issues during the
delivery of the exam you should alert the
invigilator (or online chat support if you are
sitting remotely). Neither the invigilator nor
the online chat support can advise you on
how to use the software.
Preparing your answers
5. Respond directly to the exam question
requirements. Do not include any content of
a personal nature, this includes your name or
any other identifying content.
6. Only your answer in the word processing
area will be marked. You must copy over
any data from the spreadsheet area to the
word processing area for marking.
7. The examiner will take account of the way in
which your answers are structured. You must
make sure your answers and workings are
clearly visible in the word processing area
when you submit your exam. The examiner
will not be able to expand rows or columns
where content is not visible.
After the exam
8. If you are sitting in an exam centre and
believe that your performance has been
affected by any issues which occurred during
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Download Tax Compliance Exam March 2022 and more Lecture notes Finance in PDF only on Docsity!

PROFESSIONAL

LEVEL

TUESDAY 8 MARCH 2022

2.5 HOURS

TAX COMPLIANCE

This exam consists of five questions ( marks). Marks breakdown Question 1 7 marks Question 2 13 marks Question 3 25 marks Question 4 20 marks Question 5 35 marks Assume that the Finance Act 202 1 rates and allowances as set out in the ICAEW Learning Materials for exams in 202 2 will continue to apply in 2021/22 and future years unless you are specifically instructed otherwise. The Hardman's Tax Rates and Tables book is available as a resource in each question.

Important Information:

  1. Please read the instructions carefully before you begin your exam. Starting and ending the exam
  2. Click on the right arrow in the header to begin the exam. The exam timer will begin to count down.
  3. When the exam timer reaches zero, the exam will end. To end the exam earlier, navigate to the last question and click the right arrow button. Click the Submit button to close the exam. Encountering issues during the exam
  4. If you encounter any issues during the delivery of the exam you should alert the invigilator (or online chat support if you are sitting remotely). Neither the invigilator nor the online chat support can advise you on how to use the software. Preparing your answers
  5. Respond directly to the exam question requirements. Do not include any content of a personal nature, this includes your name or any other identifying content.
  6. Only your answer in the word processing area will be marked. You must copy over any data from the spreadsheet area to the word processing area for marking.
  7. The examiner will take account of the way in which your answers are structured. You must make sure your answers and workings are clearly visible in the word processing area when you submit your exam. The examiner will not be able to expand rows or columns where content is not visible. After the exam
  8. If you are sitting in an exam centre and believe that your performance has been affected by any issues which occurred during

the exam, you must inform your invigilator at the time of the occurrence and follow up with ICAEW directly after your exam. You will then need to submit a special consideration application to ICAEW if you wish us to consider such issues, as per our published policy. If you are sitting remotely please submit your special consideration application referring to anything of note which occurred and will have been recorded, for use as evidence to support your case.

  1. A student survey is provided post-exam for feedback purposes.

Question 2. Dunbar Ltd is a VAT-registered company that makes both standard rated and exempt supplies. Dunbar Ltd has a VAT year ending on 31 March. All amounts below are stated exclusive of any VAT. On 20 June 2015 Dunbar Ltd purchased a new freehold office building, Piper House, for £ 300 ,000. The office building was used for both taxable and exempt purposes. From purchase until 31 March 2021, Dunbar Ltd had 61% taxable supplies and 39% exempt supplies. On 20 January 2022 Dunbar Ltd sold Piper House for £400,000 to an unconnected company. There has been no option to tax Piper House. A new freehold office building, Compston House, had been purchased for £200,000 on 9 January 2022, as a replacement. In the year ending 31 March 2022 Dunbar Ltd has 65% taxable supplies and 35% exempt supplies. Requirements a. In relation to both the disposal of Piper House and the acquisition of Compston House:

  • Calculate, with supporting explanations, the amounts of VAT payable or recoverable by Dunbar Ltd for the quarter ending 31 March 2022, and:
  • Clearly state whether each VAT amount is payable to or recoverable from HMRC. ( 7 marks) b. Calculate the stamp duty land tax (SDLT) payable by Dunbar Ltd in January 2022. ( 2 marks) Question 2. Martin is a VAT-registered trader, with a business based in London, supplying goods that are standard-rated if sold in Great Britain (GB). Martin had the following transactions in the quarter ending 31 March 2022. All amounts are stated exclusive of VAT, where relevant: £ Sales Supplies to GB customers 7 8, Supplies to registered businesses in Spain 24, 102 , Purchases and expenses Purchases and expenses in GB – standard-rated (Note) 46, Professional fees paid to accountant in Spain re trading contracts 2,3 00 Purchase of car for business and private use by an employee 20 , 68, Note: The purchases and expenses of £46,000 include £5,000 for entertaining potential GB- customers.

Requirement Calculate Martin’s VAT payable for the quarter ending 31 March 2022. Show your treatment of each item. (4 marks) Total: 13 marks

  • 1 0,000 shares in Cottan plc, an investment company listed on the London Stock Exchange. At the time of Keeley’s death Cottan plc had two million issued shares quoted at 2 64 p – 288 p with marked bargains of 2 6 8p, 2 75 p and 2 87 p.
  • 2,000 shares in Sondhi Ltd, an unquoted investment company, representing a 40% shareholding. Keeley’s brother owns another 40% of the shares and the remaining 20 % are owned by a charity. Keeley gave the 20 % holding to the charity in 20 18. The shares were valued as follows at Keeley’s death: Value per share £ 0%–25% 10 26 %–50% 11 51 %–74% 18 75 %–90% 21 91 %–100% 30
  • A £ 1 00,000 life assurance policy taken out on Keeley’s brother’s life. At the date of Keeley’s death the market value of the policy was £ 22 ,000. At her death Keeley had debts and funeral expenses amounting to £30,000. In July 2 018 Keeley made a gross chargeable transfer of £ 24 0,000 to a discretionary trust. In her will, Keeley bequeathed £50,000 to a UK charity and the remainder of her estate to her children. Keeley never married. Requirement Calculate the inheritance tax payable on Keeley’s death estate. State the due date for payment to avoid paying interest. ( 13 marks) Total: 25 marks

Question 4 You work for a firm of ICAEW Chartered Accountants and are involved in the tax compliance work for a client Baladi Ltd. Baladi Ltd manufactures computer components and is a wholly owned subsidiary of Jellop Ltd. Jellop Ltd has approximately 100 other wholly-owned subsidiaries. During the year ending 31 March 2022 Baladi Ltd made the following capital disposals:

  • Freehold factory In June 2021 Baladi Ltd sold its factory for £1, 9 00,000. The factory was purchased in May 2000 for £ 65 0,000. The factory was used 8 5 % by Baladi Ltd for manufacturing and the remaining 15 % was let to unconnected companies during the period of ownership. Baladi Ltd purchased a new factory from a developer on 1 April 2021 for a total of £2,500,000 (including £500,000 for the land). Baladi Ltd started to use the new factory on 1 June 2021 and uses the whole of the factory for manufacturing. Interest of £2, 5 00 was payable in the year ending 31 March 2022 on the loan to purchase the new factory.
  • Shares in Pepple Ltd In August 2021 Baladi Ltd sold its 2,000 ordinary shares in Pepple Ltd, a company manufacturing microchips, for £250,000. Baladi Ltd had purchased the shares for £26,000 in June 2008. At the time of sale, Pepple Ltd had 10,000 issued ordinary shares. Trading profits Baladi Ltd is estimated to have a tax-adjusted trading profit before capital allowances of £2,450,000 for the year ending 31 March 2022. All relevant adjustments other than capital allowances have been made in arriving at the tax-adjusted trading profit. Research and development (R&D) costs During the year ending 31 March 202 2 Baladi Ltd incurred the following costs, all directly related to R&D, which have been deducted in arriving at the profit of £2,450,000: £ Staff costs 18 0, Externally provided workers 100, Consumables 25 , Computer software 3 0, 335, The externally provided workers are from an unconnected company. Baladi Ltd is a large company for R&D purposes. Capital allowances None of the annual investment allowance of the Jellop Ltd group has been allocated to Baladi Ltd.

Question 5. 1 Aiysha has been employed by McClure Ltd as a digital marketing manager since 6 April

  1. Her employment package for 2021/22 is as follows:
  • Salary of £ 48 ,000 pa, from which PAYE of £7,450 will have been deducted by the end of the tax year.
  • Car mileage Aiysha uses her own car for work and will have travelled 11,000 business miles during 2021 /22. McClure Ltd paid her 50p per mile for each business mile travelled. Aiysha spent £5,100 during 2021/22 on repairs, servicing and fuel for her car.
  • Private health insurance McClure Ltd paid £430 in private health insurance for Aiysha in February 2022. If Aiysha had paid for the same level of cover herself it would have cost her £580.
  • Pension contributions McClure Ltd pays 6 % of Aiysha’s salary into the company’s occupational pension scheme. Aiysha also pays 5 % of her salary into the scheme. Other income and expenses In addition to her employment income Aiysha has the following sources of income for 2021/22:
    • Property income Aiysha owns an apartment that she rents out for £1,200 per month. The tenant was late in paying the rent due on 31 March 2021. This was not paid until 10 April 2021. For the remainder of the tax year, the tenant paid monthly in arrears on the last day of the month and is expected to pay the March 2022 payment on time. During 2021/22 Aiysha paid insurance of £300 and repairs of £170. She also made mortgage payments of £ 2 ,500, of which £ 6 50 is interest and £ 1 , 8 50 is capital.
    • Interest received. Aiysha received interest of £3,800 on savings accounts including £60 of interest on her ISA. She will receive no further interest before 6 April 2022. Requirements For 2021/22, calculate Aiysha’s: a. Employment income. Show your treatment of each item. ( 4 marks) b. Class 1 primary national insurance contributions. ( 2 marks) c. Income tax payable. ( 8 marks) d. Net disposable income. ( 7 marks)

e. Explain the effect, if any, on the calculations in parts (a) to (c) above if Aiysha had been a member of a personal pension scheme instead of an occupational pension scheme. Calculations are not required. ( 3 marks) Question 5. 2 Neet and Vicky have been working in partnership for many years producing mobile phone charger leads. Neet and Vicky have always shared profits in the ratio 2:3 respectively, after first paying a £20,000 salary to Neet. The partners have calculated the tax-adjusted trading profit before capital allowances for the year ended 31 December 2021 to be £172,500. However, they were unsure how to treat the following two issues and so have made no adjustment in relation to them:

  1. Damaged inventories Included in closing inventories are goods at their original cost of £9,600. These were smoke-damaged in a recent fire and the partners think that they are now worth only £500.
  2. Goods taken from the business Neet and Vicky have taken goods from the business for their family and friends. The total value of these goods was £ 40 but these had a resale value of £ 18 0. No sales were recorded in relation to the goods taken. Capital allowances At 1 January 2021, the tax written down values were £24,300 on the main pool, and £ 6 ,000 on the special rate pool. The partnership had the following capital transactions during the year ended 31 December 2021: Additions at cost £ March 2021 Computer equipment 30 , August 202 1 Car with emissions of 1 5 0g/km used by Neet 30% for business purposes

Disposal proceeds June 2021 Machinery (original cost £40,000) ( 4 ,500) Trading loss in the previous accounting period In the year ended 31 December 2020 the partnership made a trading loss. Vicky’s share of the loss was £36,000. For income tax purposes this was carried back and fully relieved against her net income of 2019/20. Her net income in 2019/20 comprised £29,500 of trading profits and £20,000 of dividend income.