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Time allowed
Reading and planning: 15 minutes
Writing: 3 hours
This paper is divided into two sections:
Section A BOTH questions are compulsory and MUST be attempted
Section B TWO questions ONLY to be attempted
Tax rates and allowances are on pages 35
Do NOT open this paper until instructed by the supervisor.
During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.
P
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Advanced Taxation
(United Kingdom)
Monday 3 December 2007
The Association of Chartered Certified Accountants
This is a blank page.
The question paper begins on page 3.
2
SUPPLEMENTARY INSTRUCTIONS
1. You should assume that the tax rates and allowances for the tax year 2006/07 and for the financial year to
31 March 2007 will continue to apply for the foreseeable future unless you are instructed otherwise.
2. Calculations and workings need only to be made to the nearest .
3. All apportionments should be made to the nearest month.
4. All workings should be shown.
TAX RATES AND ALLOWANCES
The following tax rates and allowances are to be used in answering the questions.
Income tax
%
Starting rate 1 2,150 10
Basic rate 2,151 33,300 22
Higher rate 33,301 and above 40
Personal allowances
Individuals 8,800
4
Capital gains tax: taper relief
Complete years after 5 April Gains on Gains on non-
1998 for which asset held business assets business assets
1 50% 100%
2 25% 100%
3 25% 95%
4 25% 90%
5 25% 85%
6 25% 80%
7 25% 75%
8 25% 70%
9 25% 65%
10 25% 60%
National insurance contributions (not contracted out rates)
%
Class 1 Employee 1 5,035 per year Nil
5,036 33,540 per year 110
33,541 and above per year 110
Class 1 Employer 1 5,035 per year Nil
5,036 and above per year 128
Class 1A 128
Class 2 Small earnings exception limit 4,465
210 per week
Class 4 1 5,035 per year Nil
5,036 33,540 per year 80
33,541 and above per year 10
Rates of interest
%
Official rate of interest 50
Rate of interest on underpaid tax 75 (assumed)
Rate of interest on overpaid tax 35 (assumed)
Stamp duty land tax
Rate
Ad valorem duty
Residential property
125,000 or less (1) Nil
125,001 250,000 1%
250,001 500,000 3%
500,000 or more 4%
(1) For non-residential property, the nil rate is extended to 150,000.
Stamp duty
Shares 05%
Fixed duty 5
5 [P.T.O.
Section A BOTH questions are compulsory and MUST be attempted
1 Your manager has had a meeting with Adam Snook and has sent you a copy of the following memorandum.
To The files
From Tax manager
Date 1 December 2007
Subject Adam Snook
Adam Snook (AS) has been entertaining children at parties as a hobby for the last two years. On 1 June 2007 his
aunt gave him shares in Brill plc, a quoted company, worth 88,040. As a result, AS intends to give up his job on
31 December 2007 (he is a regional sales manager with Rheims Ltd) and purchase a small theatre from which he
will carry on a business of providing entertainment for childrens parties.
The business
AS will begin advertising and charging for attending childrens parties on 1 January 2008. He estimates that his net
profit for the first five months (until the theatre opens) will only be 400 per month. Accordingly, he has agreed to
work part-time for his existing employer from 1 January 2008 until 31 May 2008 for a salary of 1,050 per month.
AS will purchase the theatre on 1 April 2008. He estimates that it will take six weeks or so to renovate the theatre
such that it should be ready for business by 1 June 2008 at the latest. AS will seek to rent out the theatre for the
days when it is not required for his business.
We agreed that the business should prepare accounts to 31 March each year. AS does not wish to form a limited
company.
The supply of entertainment at the theatre will be standard rated for the purposes of value added tax (VAT) and AS
will register for VAT on 1 June 2008.
The finance required
The costs of establishing the business, exclusive of recoverable VAT, are set out below.